Japan: inflation expectations slowed further in bond market – Nomura

FXStreet (Barcelona) - Yujiro Goto, Research Analyst at Nomura, comments that Inflation expectations among bond investors decelerated further in March, and with this being one of the measures followed by the BoJ, expectations for further easing are increasing.

Key Quotes

“Inflation expectations declined broadly from short-term (1-2yr) to long-term (10yr). 1yr expectations undercut 1.0% (0.93%), for the first time in 18 months, likely reflecting weaker actual inflation and lower oil prices.”

“2yr expectations slowed to 1.18%, the slowest inflation since August 2013, from 1.22%. 10yr expectations also slowed to 1.29%, the slowest since October 2013, from 1.36%.”

“Even though 10yr inflation expectations remain higher than before the QQE announcement (1.13% in March 2013) and before Abenomics (0.77% in October 2012), expectations slowed meaningfully from the latest peak at 1.61% in July 2014.”

“Inflation expectations among bond investors are one of the measures the BOJ follows, and there will be two inflation expectation surveys this Thursday from the BOJ.”

“BOJ Governor Kuroda said that the BOJ cannot determine price expectations by just looking at BEI, while the Bank is looking at various indicators to determine expectations. Core inflation has now returned to zero, but for the BOJ inflation expectations will be the more important indicator at the moment, and the outcome this Thursday will be important for BOJ monetary policy.”

“Market expectations for the BOJ meeting next week (7-8 April) are small, while some still expect the BOJ to ease at the second April meeting on 30 April.”

“Inflation expectation data will influence Mr Kuroda's stance at the press conference next week, which could lead to some position unwinding in USD/JPY.”