Goldman Sachs abandoned its call for January easing
In a note to clients this week, economists at Goldman Sachs withdrew a forecast for Bank of Japan easing at the January meeting. Instead, they see Kuroda increasing quantitative easing at the mid-April meeting.
"Our base-case scenario now calls for easing at the end-April MPM based on two factors: (1) Tokyo core-core CPI inflation accelerated to +0.6% yoy in November from +0.4%, and there is an increasing likelihood that a deceleration in national core-core CPI inflation will occur later than previously expected, and (2) capex, a longstanding concern for the BOJ, rose into positive
territory in July-September," Goldman Sachs wrote.
The preview was written before the soft trade data and mixed Tankan reports that were released this week.
Two areas where the BOJ is looking for improvement
"The BOJ and government are concerned about growth in capex and wages being sluggish despite strong corporate earnings growth. Capex growth finally turned positive in the July- September MOF corporate statistics and the second GDP estimate, suggesting that the optimistic FY2015 capex plans contained in the September BOJ Tankan (with large enterprises calling for 10.9% growth) have begun to be implemented. If capex plans remain upbeat in the December Tankan, this would strengthen the BOJ's confidence in the capex recovery, in our view," Goldman Sachs wrote.
The thinking at the BOJ is that wages will rise when households have higher inflation expectations. They also highlighted the corporate inflation outlook in the Tankan report.
On that front, the Tankan was a big disappointment. Output prices for large firms were at -11 compared to -8 expected and -7 in September. Input prices also point to deflation with the diffusion index at -2 compared to +4 in Sept.
The balance of news over the past week has pointed to more potential for easing. Today would be a heck of a time for a surprise.
For more on the BOJ, see Preview: What time is the Bank of Japan decision? And what's going to happen.
