As the government is growing increasingly receptive to the idea of a policy shift, the central bank could very well change policy as early as March 9.
As the data show, the gap between domestic supply and demand is clearly narrowing, which should create the environment for prices to rise stably.
It is possible that this year will mark the end of the deflation and will bring in a paradigm shift to the bond market next year. Ten-year yields may rise to 2 percent by the end of March next year.
The CPI was higher than expected and is supportive for the BOJ. The markets have already discounted an early end to the quantitative easing policy.
We expect the core nationwide CPI to rise 0.4 pct year-on-year, for a fourth straight month of non-negative growth.
