Market Economics | Interest Rate Strategy - BNP PARIBAS ...

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Chart 13: Japanese CPI (% y/y)
Core CPI
BNP Paribas Forecast: Same Rate of Decline
Japan: CPI (National, December)
Release Date: Friday 28 January
In November, the rate of decline in the national core CPI
eased 0.1pp from October to -0.5% y/y on higher prices for
petroleum products and food (prices for both components
were unchanged m/m). Excluding energy and food (but not
alcohol), the US-like core CPI fell 0.1pp faster than
October, coming in at -0.9% y/y.
-2
-3
CPI excluding energy and food, but not alcohol
02 03 04 05 06 07 08 09 10
Source: Reuters EcoWin Pro
% y/y Dec (f) Nov Oct Sep
Core CPI -0.5 -0.5 -0.6 -1.1
CPI -0.1 0.1 0.2 -0.6
Based on the Tokyo CPI numbers for December (after
making allowances for differences with the national index),
we estimate that the national core CPI should be
unchanged from November at -0.5% y/y. While deflationary
pressures are easing, the rate of improvement is being
tempered by downward pressures from the yen’s
appreciation in the summer, coupled with the stalling of
improvements in the output gap. In this respect, slowing
exports and fallout from the end of green car subsidies are
likely to cause the economy to contract in Q4.
Key Point:
While deflationary pressures are easing,
improvements in the national core CPI will likely
stall in December.
Chart 14: Japanese Unemployment Rate (% s.a.)
6.0
5.5
5.0
4.5
4.0
3.5
00 01 02 03 04 05 06 07 08 09 10
Source: Reuters EcoWin Pro
% s.a. Dec (f) Nov Oct Sep
Unemployment rate 5.1 5.1 5.1 5.0
Key Point:
With the economy expected to contract in Q4,
improvements on the job front will probably remain
stalled for the time being.
BNP Paribas Forecast: Flat
Japan: Unemployment Rate (December)
Release Date: Friday 28 January
We expect the unemployment rate in December to remain
at 5.1% for the third straight month. After rapidly improving
from a record-high of 5.6% in July 2009 to 4.9% in
January-February 2010, the jobless rate has subsequently
seesawed in the low 5% range, as improvements on the
job front have stalled.
While job losses from downsizing/business failures has
declined, individuals seeking new jobs or better working
conditions are finding few opportunities. Corporations are
reluctant to aggressively hire owing to lingering perceptions
of over-staffing, as labour adjustments during the last
recession focused on working hours, thereby leaving
payrolls relatively intact.
Although perceptions of excessive employment are steadily
waning, it will be some time before job growth clearly picks
up, especially since the economy looks headed for a
momentary contraction in Q4 due to the winding down of
stimulus programmes.
Market Economics 20 January 2011
Market Mover
77
www.GlobalMarkets.bnpparibas.com