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BoJ’s 2% inflation target expected to be reached in early 2016 - BNP Paribas

FXStreet (Łódź) - Raymond Van Der Putten from BNP Paribas comments on Japan's August inflation numbers, which showed a slowdown to 3.3% from the previous month's 3.4% on an annual basis.

Key quotes

"Excluding the direct effect of April’s VAT hike, inflation was around 1.1%."

"Some have attributed this deceleration to the softening of growth after the VAT hike in April. However, there is not much evidence that this has a lasting effect. On the contrary, the Economy Watchers report that its effect has been waning."

"The rapid disappearance of the negative impact of the VAT hike would support the government’s intention to hike the consumption tax rate again in October 2015, from 8% to 10%."

"The decline in inflation has questioned whether the BoJ’s 2% inflation target is achievable."

"According to our projections, the target could be reached in early 2016."

"As the output gap has virtually disappeared, wages have been rising again. In July, contract wages were 0.5% higher from a year earlier. Wages should gain further momentum in the coming months."

"Moreover, the yen is expected to depreciate further against the dollar."

"As inflation expectations rise, retailers might find it easier to pass on higher import prices and production costs to sales prices."

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