FXStreet (Delhi) – Yujiro Goto, Research Analyst at Nomura, notes that the Cabinet Office consumer confidence survey for December suggests household inflation expectations slowed further, as indicated by BOJ’s quarterly survey.
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“79.7% of households expect prices to go up over the next 12 months, declining from 80.6%. This is its lowest since at least April 2013, when the BOJ embarked on its QQE programme. Among households expecting higher prices, more household expects price increases of less than 2%, while the share of households expecting price increases of 2-5% and more than 5% declined. As a result, the weighted average inflation expectation declined to 2.33% from 2.46%, the lowest since BOJ QQE.
Nikkei reported that labour unions of Toyota and Nissan are going to request base salary increases of only 3000yen/month in spring wage talks, which is a more conservative request than last year (unconfirmed).
Japanese nominal wages have been rising recently from a year ago, but if labour union requests are conservative, spring wage talks may not accelerate wage inflation (Figure 2). BOJ Governor Kuroda said the BOJ is monitoring wage talks closely, but it may be disappointed by the outcome.
Inflation expectations and wages are two important factors for the BOJ to judge the underlying inflation trend, on top of the output gap and price setting behaviour. Although the BOJ can reiterate that the decline in inflation expectations is temporary owing to energy prices, weakness in inflation expectations and disappointment in wage talks will increase the pressure on the BOJ to consider easing to achieve 2% inflation.
Financial market conditions have also deteriorated since the previous meeting. While market expectations for BOJ easing once declined after the December decision, easing expectations can recover into the January meeting, which may limit USD/JPY downside, especially after speculative positions turned net JPY long.”
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