Falling energy prices jeopardise inflation target

Policymakers will have been comforted by the jump in the Nikkei and the plunge in the yen since they stepped up the pace of monetary easing at the end of October. As such, they will almost certainly leave policy settings unchanged this week. However, the renewed increase in spare capacity since the sales tax hike and the sharp fall in global energy prices will likely dampen price pressure. We therefore still think that further stimulus will be announced sometime in the spring.