Lower price expectations add to case for more easing

Expectations of future price rises among Japanese households and firms have been undermined by the energy-related collapse in observed inflation. Even though the drag from cheaper energy will fade in coming months, we expect inflation to remain below the peaks recorded ahead of last year’s sales tax hike. Accordingly, inflation expectations are unlikely to rebound strongly. With the economic recovery grinding to a halt, we remain convinced that the Bank of Japan will announce more stimulus by the end of the month.