Market Outlook - BNP PARIBAS - Investment Services India

Key Data Preview
3
2
1
0
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Chart 1: Japanese CPI (% y/y)
Core CPI
CPI excluding energy and food, but not alcohol
02 03 04 05 06 07 08 09
Source: MIC, BNP Paribas
% y/y Dec (f) Nov Oct Sep
Core CPI -1.4 -1.7 -2.2 -2.3
CPI -1.8 -1.9 -2.5 -2.2
Key Point:
The core CPI’s rate of decline should ease again in
December as the base effect from changes in
petroleum product prices wanes. However,
deflationary pressures won’t be easily overcome as
the economy is likely to lose steam from the spring.
BNP Paribas Forecast: Smaller Decline
Japan: CPI (National, December)
Release Date: Friday 29 January
After hitting a record -2.4% y/y in August, the rate of
decline in the national core CPI has steadily eased for
three straight months, coming in at -1.7% in November.
Based on Tokyo metropolitan area data for December, we
predict that the national core CPI will fall by just 1.4% y/y in
December. But the moderation in the decline in the CPI
does not reflect the easing of deflationary pressures, rather
it is just a technical reaction to the sharp change in
petroleum product prices a year earlier. This technical
factor should continue to temper the CPI’s rate of decline
though January, after which the fall in the CPI will reaccelerate
as this base effect disappears.
With the economy expected to lose some momentum from
the spring, when the effects of the fiscal stimulus fade,
deflationary pressures are certain to persist for the time
being. Meanwhile, planned fiscal policy measures are likely
to weigh on the core CPI, such as the abolition of public
high school tuition fees, which could shave 0.4 of a
percentage point off the index from April.
Chart 2: Japanese Unemployment Rate (% sa)
6.0
5.5
5.0
4.5
4.0
3.5
00 01 02 03 04 05 06 07 08 09
Source: MIC, BNP Paribas
% sa Dec (f) Nov Oct Sep
Unemployment Rate 5.2 5.2 5.1 5.3
Key Point:
Although the jobless rate has stopped rising thanks
to the revival in industrial activity and flexible wage
adjustments that have lessened the need for sharper
labour cutbacks, it will still be some time before
employment starts recovering.
BNP Paribas Forecast: Flat
Japan: Unemployment Rate (December)
Release Date: Friday 29 January
The unemployment rate inched up 0.1 of a percentage
point in November to 5.2% but the trend is downwards after
the peak in July at a record 5.7%. Since the total number of
people employed is not growing at all, the downturn in the
jobless rate is largely a product of a continued rise in the
number of discouraged workers (people who have given up
on finding jobs and have left the workforce). Another factor
keeping the jobless rate in check is the flexibility of wages,
particularly bonuses, which has helped to lessen the need
for painful cutbacks in employment. While the worst is over
on the jobs front thanks to the pick-up in the economy on
the back of fiscal stimulus and robust exports to Asia,
conditions are far from ripe for a recovery in employment.
From the spring, it is very likely that the economy will enter
a “soft patch” as the effects of the fiscal stimulus fade. And
even though the jobless rate is expected to continue
trending lower, reflecting the steady shrinkage of the
workforce due to the rise in the average age of the
population, a "jobless recovery" should continue for quite
some time to come.
Market Economics 29 January 2010
Market Mover
56
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