07/13/2015
Japan / Rates
We do not expect any policy change at the Bank of Japan meeting this Wednesday but there is a possibility that it may trim its fiscal year 2015 growth estimate.
No policy change is expected at the Bank of Japan (BOJ) meeting this week. But board members may revise the growth estimates for fiscal year 2015, reported the local media.
We would not be surprised to see the fiscal year 2015 growth estimate trimmed from 2.0% to 1.6-1.8%. Exports and industrial production data have deteriorated markedly in May, in light of weaker demand from China and Europe. A meaningful rebound appears unlikely for the immediate term, given the softening of June purchasing managers’ index data and the recent increase in global market volatility. Deterioration in the external environment also implies downside risks to the BOJ’s inflation outlook. Falling commodity prices and the strengthening Japanese yen will put downward pressure on the consumer price index figures this month.
Thankfully, the recovery in domestic demand remains on track. Consumption growth has picked up, as seen in the improvements in May retail sales and household spending. Inflation-adjusted real wage growth has finally turned positive, thanks to pay rises and the fading impact of the sales tax hike. Investment indicators (machine orders, construction orders) are also holding up well. On account of these, the BOJ would maintain the core view that the domestic economy is on a virtuous path of recovery and inflation will trend up in the medium-term. Policymakers shouldn’t be in a hurry to add monetary stimulus.
