CBA (Commonwealth Bank of Australia) is out with a note today, saying they expect Japan’s recession will eventually lead to higher unemployment, lower wages, lower government tax revenue and weak business investment, thus sending Japan back into ‘mild deflation’.
- CBA say as unemployment increases then the CPI will fall further, back into deflation
- They conclude this will lead to further declines in the yen (higher USD/JPY and crosses)
–
A pretty bearish assessment from CBA.
With Japan fighting against structural problems and the 3rd arrow (structural reform) seemingly non-existent …. maybe the CBA is right. I expect a bounce back on Q4, though, as the impact of the sales tax hike dissipates further. Japan isn’t gonna boom …. but I don’t see a return to deflation.
