18 Dec 2014
Oil below $60 could trigger deflation in Japan – Nomura
FXStreet (Barcelona) - According to Research Analysts at Nomura, crude oil below $60/bbl could temporarily push Japan into deflation, may lead to a surplus in the balance of trade, and increase the chances of easing.
Key Quotes
“Crude oil prices have been tumbling, with Brent futures falling below $60/bbl on 16 December. Assuming $60/bbl from end-December, we calculate core CPI growth of 0.0% y-y in 2015 Q2 followed by a rise in core inflation, in part reflecting flat oil prices thereafter. However, an oil price remaining below $60/bbl will increase the likelihood of inflation turning negative, if only temporarily.”
“Our main scenario at this juncture is for additional monetary easing in October 2015, and we think additional easing is unlikely before then. This is because the BOJ will likely try to avoid using up all its ammunition and because the Japanese economy is likely to remain firm. However, if crude oil prices do not rebound and raise the risk of core CPI growth turning negative, albeit temporarily, the BOJ could well bring easing forward”
“The BOJ is currently focusing on the impact current prices are having on the expected inflation rate. The BOJ could well be of the opinion that a swift move into negative inflation could be a major impediment to getting Japan out of a deflationary mindset.”
“We are interested in how the BOJ would perceive a sustained fall in crude oil prices."
“The November trade statistics published on 17 December showed a seasonally adjusted annualized trade deficit of ¥11.1trn. This is smaller than the ¥11.8bn figure for October but still large. However, lower oil prices should now be feeding through to trade statistics”
“Assuming an oil price of $60/bbl from end-December, we calculate that the balance of trade would turn positive in 2015 Q2. This also suggests that lower energy costs could also result in a major improvement in earnings at Japanese companies.”
Key Quotes
“Crude oil prices have been tumbling, with Brent futures falling below $60/bbl on 16 December. Assuming $60/bbl from end-December, we calculate core CPI growth of 0.0% y-y in 2015 Q2 followed by a rise in core inflation, in part reflecting flat oil prices thereafter. However, an oil price remaining below $60/bbl will increase the likelihood of inflation turning negative, if only temporarily.”
“Our main scenario at this juncture is for additional monetary easing in October 2015, and we think additional easing is unlikely before then. This is because the BOJ will likely try to avoid using up all its ammunition and because the Japanese economy is likely to remain firm. However, if crude oil prices do not rebound and raise the risk of core CPI growth turning negative, albeit temporarily, the BOJ could well bring easing forward”
“The BOJ is currently focusing on the impact current prices are having on the expected inflation rate. The BOJ could well be of the opinion that a swift move into negative inflation could be a major impediment to getting Japan out of a deflationary mindset.”
“We are interested in how the BOJ would perceive a sustained fall in crude oil prices."
“The November trade statistics published on 17 December showed a seasonally adjusted annualized trade deficit of ¥11.1trn. This is smaller than the ¥11.8bn figure for October but still large. However, lower oil prices should now be feeding through to trade statistics”
“Assuming an oil price of $60/bbl from end-December, we calculate that the balance of trade would turn positive in 2015 Q2. This also suggests that lower energy costs could also result in a major improvement in earnings at Japanese companies.”