BOJ’s cure for the summertime blues – Nikko AM

The Bank of Japan will likely be forced to amplify its monetary easing programme in July or August in response to dimming prospects for GDP growth in the country, according to Nikko Asset Management’s latest Evolving Markets research report.

As Nikko’s report showed, analysts at the Tokyo-based asset manager believe the BOJ’s inability to forecast the slowdown in the Chinese and eurozone economies, as well as the negative impact on the central bank’s inflation target from generally lower commodities prices, will prod the BOJ to act.

The report also highlighted that another external factor impacting the Japanese economy is the energy situation in Europe, where Western-allied countries opposed to recent Russian moves are facing the need to cut their reliance on Russian natural gas that flows through the troubled Ukraine region.

“The G-7 is urging its members to tap other sources of energy, which for Japan means restarting its nuclear power plants that have been offline following the Great East Japan Earthquake in 2011,” the report reads.

John F. Vail, Chief Global Strategist and Chairman of the Global Investment Committee at Nikko Asset Management said: “We’ve been consistently, and correctly, on the other side of the consensus view that the BOJ would ease further in the first half of 2014.

“And we’re happy to continue to be contrarian in our call for additional easing in the second half, based on external factors outside the BOJ’s control.”

“Japan stands to benefit the most from increasing the use of nuclear power, as it would reduce the trade deficit and boost GDP growth substantially,” said Vail. “At the same time, corporate profit margins would rise and real personal income would also get a boost from lower energy prices.”

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