I posted this just a few minutes ago: …the BOJ “could come under renewed pressure to add to its … stimulus measures”

I highlighted the implication of falling exports that the BOJ could come under renewed pressure to add to its already massive stimulus measures

Its from the Wall Street Journal overnight, and I thought I’d follow it up with some bank research (Morgan Stanley client note from July 25, in the wake of Japan’s June (national)/July (Tokyo) CPI data published that day) on the CPI outlook (remember, the BOJ has a 2% target, and about a year (less!) left in which to achieve it.

This is a bit of a long post …

Again, bolding is mine:

  • The June nationwide Japan core was +1.3%Y (ex. C-tax impact of +2.0pp), a smaller rise than in April (+1.5%Y) and May (+1.4%Y).
  • The June US-style core (ex. food and energy), a more appropriate measure for gauging underlying inflation, was +0.6%Y (ex. C-tax impact), stuck in the narrow range of +0.5-0.8%Y since November 2013
  • Tokyo University’s Daily Price Index and other indices suggest that upward pressure on prices is easing

MS asks: Is the CPI deceleration really temporary?

  • BoJ Governor Kuroda (says) inflation will stay around the low 1%Y level for some time before rising again from the latter half of this fiscal year, reaching 2%Y around the middle of its outlook period (FY2015)
  • Furthermore, Governor Kuroda … declaring that a drop below 1%Y is not possible
  • While we expect slower YoY growth for the Japan-style core entering summer, we also think that a fall below 1%Y is less likely with climbing gasoline prices

MS goes on …

  • We believe that the most important point in terms of monetary policy is not whether the Japan-style core falls below +1%Y in the near future, but the likelihood of whether prices pick up again from autumn as the BoJ envisions, steadily reaching the 2%Y target in FY2015
  • Recent consumption, capex and export data also lack strength, and we expect real GDP in Apr-Jun (due August 13) to contract significantly
  • Considering that personal consumption is likely to remain sluggish, given the big slide in real disposable income after the tax hike and that households’ expected inflation is highly likely to be coming down … we believe that the likelihood of achieving the 2%Y inflation target by the end of the next fiscal year is already falling.

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If MS is correct (and they are not alone in this view, although the BOJ disagrees with the assessement) then … see my previous post’s conclusion … the BOJ could come under renewed pressure to add to its already massive stimulus measures … The BOJ adding to its QQE efforts further will be a negative input for the yen.