I have been arguing continuously for some months now that Japan might not escape the deflation trap so easily as some seem to imagine. Today there are two pieces of news which should at least give the 'optimists' some pause for thought.
Firstly the news that Japan's economy most likely slowed in the third quarter, with one of the principal explanations being the lack of dynamism in the consumer sector.
Secondly Morgan Stanley's Takehiro Sato suggests that negative influences on prices may mean that y-o-y positive prices may still be quite a time away.
Based on the above, it is clear that the scenario calling for the BoJ to eliminate quantitative easing owing to a slight recovery in the core CPI inflation rate is now on unexpectedly shaky ground. Even if the BoJ is compelled to keep its commitment and eliminate quantitative easing, the factors affecting whether it will be able to follow that move fairly soon with rate hikes as currently planned are becoming even less certain over the near term.
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