Morgan Stanley analytics forecast the economy will return to pre-crisis levels by the fourth quarter. Here’s why.
Japan inflation stands still in October
In October, Japan's annual core consumer inflation didn’t change from September because soft household spending kept the country’s companies from raising prices. That’s a definite indication that the Japanese economy lacks the momentum required to achieve the BOJ’s 2% goal.
The nationwide core consumer price index, striping way the effect of volatile food prices, managed to gain 1% in October from 2017, as follows from government data. It generally matches a median market estimate.
With half of the profit due to higher energy costs, the BOJ might struggle to achieve consistent price surge because global trade frictions along with decelerating Chinese demand worsen the outlook for the Japanese export-reliant economy.
Showing that inflationary pressure is already building up, the index, excluding energy and food, indicated inflation of 0.4% in October, which appears to be a steady outcome for three months.
Apparently, stubbornly soft inflation has ruined the BOJ's expectations that firm economic surge would bring higher prices, making Japan’s key financial institution to maintain its huge stimulus notwithstanding adverse side-effects, including the erosion of financial institutions' revenue from years of near-zero interest rates.
Notwithstanding grumbling over the soaring adverse impact of its stimulus, Japan’s major bank will probably keep inflation as its major policy consideration.
Many experts expect core consumer inflation to stand still or decelerate from current levels in the nearer future, considering recent dives in crude.
With gasoline prices starting to dive, the boost to inflation from energy prices might begin to taper off.
The worsening outlook for the Japanese economy is a bad sign for the BOJ's attempts to fire up inflation to its objective.
Escalating China-U.S. trade frictions are starting to affect Japanese business sentiment, generating worries that any rebound in surge from a economic contraction in July-September could appear to be weaker than anticipated.
The RBA will make a rate statement on August 4 at 7:30 MT time.
The overall market sentiment is mixed as new virus cases continue rising throughout the world, but most economic indicators came out better than analysts expected. Let’s look at the main market movements.
The market sentiment switched to risk-off after the Fed’s Powell statement. The USD edged higher, while risker assets started falling after reaching quite high levels. Let’s have a closer look.