Saturday, December 06, 2008

Japan market outlook 

We expect Japanese GDP to continue to contract until midyear 2009, before returning to a below-trend growth track in the second half of the year. Sluggish exports and the resulting drop in corporate profits will likely continue to check overall economic activity in coming quarters. We expect core inflation to moderate rapidly and turn negative again in the middle of 2009, thanks to the recent sharp drop in oil prices and widening economic slack. Against this backdrop, the Bank of Japan (BoJ) will probably cut policy rates again to 0.1% by the first quarter of 2009. There should also be the moderate potential for further declines in ten-year JGB yields amid sluggish economic activity and further rate cuts by the major central banks


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