Recent data suggest that economic activity held up fairly well at the start of the year and that the labour market continues to tighten. However, there are no signs that price or wage pressures are strengthening, and we still think that the Bank of Japan will have to step up the pace of easing before too long to reach its 2% inflation target. The upshot is that the yen should weaken further against the dollar, while the Nikkei should continue to outperform other stock markets.
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