Markets expect BoJ rate cut next year, we don’t

The surge in retail sales in September increases the chances of a steep slump in spending after the sales tax hike on 1^st October. And the rise in the unemployment rate in September suggests that capacity shortages will diminish further. However, we think that the output gap would have to turn negative for the Bank of Japan to cut interest rates, which would require a steeper slowdown in GDP growth than we are anticipating.