Can the BOJ achieve its price target?(Apr 2014)

Japan’s economy is expected to continue gradual expansion

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  • Mitsumaru Kumagai

Summary

Japan’s economy to continue gradual expansion: Japan’s economy is expected to continue to expand steadily supported by (1) increases in exports backed by the US economic recovery, (2) ongoing depreciation of the yen and the rise in stock prices supported by the BOJ’s monetary easing, and (3) economic stimulus measures to offset the effects of the consumption tax hike. We now forecast real GDP growth of +2.2% y/y for FY13, +1.0% for FY14, and +1.5% for FY15. (For further detail, see “Japan’s Economic Outlook No. 180 Update (Summary),” by Mitsumaru Kumagai, 18 March 2014.) Risks that will need to be kept in mind regarding the Japanese economy are: (1) turbulence in emerging economies, (2) China’s shadow banking problem, (3) a reigniting of the European sovereign debt crisis, and (4) a surge in crude oil prices stemming from geopolitical risk. Of these four risks, it is worth underscoring that the first is closely related to the second and third.


Can the BOJ achieve its price target?: In this report we consider whether the BOJ’s price target can be reached. Chances that the BOJ will reach its target of a 2% rise in prices have gradually improved since new governor Kuroda took office. However, this will still depend in part on trends in exchange rates, wages, and the expected inflation rate. And while the possibilities that the BOJ will reach its target cannot be discounted, our current main scenario does not expect the rate of increase in consumer price index to reach the 2% mark. We expect additional monetary easing measures by the BOJ to carry over beyond the 2014 Jul-Sep period.

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