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Deflation, not deflation, when to tighten

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  • Japan awaits the release of the Bank of Japan Tankan survey of corporate sentiment (which will include price expectations for the first time). This is seen as a catalyst for policy action by the central bank. Industrial production surprised negatively for February, though we see this as a temporary issue.
  • Flash CPI estimates are due in the Euro area today, and forecast low but still in positive territory. Structural deflation seems relatively unlikely at a time when unit labour costs are still rising in the Euro area. Noises from Germany remain characteristically hawkish on monetary policy.
  • US Fed Chair Yellen is scheduled to speak ahead of Friday's employment report data. We are expecting a strong showing on the non-farm payrolls, but neither Yellen nor anyone else will have any inside knowledge of the data yet.
  • Turkey's local elections produced a strong showing for Prime Minister Erdogan's party, although this does emphasise the rather divided nature of the Turkish political situation. The Turkish lira has rallied on the results.

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