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Low inflation puts policymakers in a bind

While the economy didn’t expand as much as many had hoped last quarter, more recent data have been promising. The labour market remains tight and corporate profits have never been higher, so the ongoing spring wage negotiations should result in a strong rise in base pay. However, the continued slide in inflation is jeopardising the Bank of Japan’s efforts to lift inflation expectations. We therefore still think that policymakers will announce more easing before long.

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