Economy returning to growth

There is a good chance that tomorrow’s revised GDP data will show that output was broadly flat rather than falling in Q3. Whatever the outturn, the early figures point to a return to growth this quarter. Meanwhile, underlying inflation remains high by past standards. But weakness in activity over recent months has created additional spare capacity that should soon dampen price pressures. Accordingly, we still think that the Bank of Japan will announce more easing early next year.