Japan is a major importer of oil and oil products, especially given the most recent issues that were driven by the 2011 earthquake and resulting disaster. Japan at the time was operating over 50 nuclear reactors, a core part of its energy policy. But following in the footsteps of Germany, Japan cut down its nuclear capacity and as a result imported more crude oil and related products. This means that oil price is a major influencer on everything in Japan, and its movement impacts the inflation numbers and the actions of the Bank of Japan.
So with the high input of oil imports and the Japanese inflation expectations, they sometimes are locked almost in a mirror-like pace. Oil prices have fallen and the Bank of Japan has now lowered its inflation forecast due to this cheaper oil. The bank is currently looking for 1.4 percent of inflation for next year, but the BoJ is now indicating that the number could fall even lower. Keep in mind that since the last study done buy the bank, oil prices have fallen by 20 percent. So the fall since October by 20 percent will change the inputs for the next inflation targets – an important economic release.
The next announcement is expected on 23 January. The Japanese government has announced that the GDP growth for 2019 was expected to be at 1.5 percent but it too has been downgraded to 1.3 percent. With China and the US seeing signs of an economic slowdown, things will get tough for Japan as well. Our call at Classiarius has been a warning that Japan, the US and China could all see an economic slowdown in 2019 and accelerating into 2020.
We will be updating later in the week.