Japan's GDP forecasts lowered

The risk of the BoJ easing in 2015 has fluctuated over the past week. With last Friday's August CPI data, it actually appeared to diminish. Although the CPI ex-perishables (core) fell below the previous year's level for the first time in 28 months, underlying inflation measured by the CPI ex-food (excluding alcohol) and energy (core core) and the BoJ's CPI experishables and energy strengthened (Figure 1).

"The Q3 real GDP forecast cut down to 0.0% q/q saar (Q2: -1.2%) from 1.0%, implying a stronger risk of a technical recession. This is consistent with the relatively stable correlation between GDP and IP since Q1 05. We also cut our projection for Q4 15 (to 1.2% q/q saar from 1.7%). In calendar terms, our new (old) forecasts are 0.6% (0.7%) for 2015 and 1.1% (1.3%) for 2016", estimates Barclays.

As a softer trend in the economy should weigh on prices and inflation expectations, this once again increased the risk of a 2015 BoJ ease.