Nikkei: "Lower inflation expectations cast shadow over BOJ's 2% target"

Author: Eamonn Sheridan | Category: Central Banks

A quick preview of the BOJ meeing, 'cause the world will not end with the FOMC decision on Wednesday.

Despite the hysterical (in both senses of the word) garbage I see being sprayed around the place.

Thursday and Friday we've got a Bank of Japan meeting. That won't end the world either.

Yesterday we had part 2 of the BOJ Tankan report, which had inflation expectations. I posted on how business had scaled lower their expectations

The Nikkei reported on that overnight:

  • Inflation expectations are weakening among a growing number of businesses, analysts and consumers
  • The BOJ will discuss these developments at a two-day policy board meeting starting Thursday
  • Inflation expectations tend to guide actual prices -- rosier outlooks spur consumption and capital investment, leading to higher prices. The reverse also holds true, with companies refraining from raising prices or wages against softer inflation expectations.
  • BOJ Gov. Kuroda is ... contending that inflation expectations are rising from a long-term perspective. This view is supported by a growing trend of price hikes for food and daily goods
  • Many at the central bank see no need for additional easing amid an economic recovery and improving price trends. But in November, the BOJ qualified its price outlook judgment by noting that "some indicators have recently shown relatively weak developments."

Market expectations for this week's meeting are pretty much overwhelmingly for a no change in policy. I agree. But nevertheless the lower inflation expectations are something to be aware of heading into the meeting.

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