The recent deterioration in market sentiment towards the Japanese economy is largely unjustified. The jury is still out on the consumer sector following a string of weak numbers, but we suspect that these have been distorted by measurement problems and bad weather. Consumer fundamentals – notably the unambiguous improvement in the labour market – remain positive. Looking past the monthly volatility the industrial data is upbeat too. Above all, the markets are exaggerating the importance of the downward revisions to the CPI data, which have left the upward trend in inflation intact. The scene is therefore set for a big surprise if, as we expect, the Bank of Japan raises interest rates again this year.
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