Lower global oil prices have put downward pressure on domestic prices, making it difficult for the central bank to meet its 2% inflation target even by end-2016, more than three years after it launched its current monetary easing cycle.

Core inflation plunged sharply to 0.2% y/y in January from 1.0% y/y in September 2014 (excluding the sales-tax effect), and we expect it to slow further to below 0% in the coming months.

Domestic pressure is also building, bringing into question the effectiveness of further monetary easing and the need for further Japanese yen (JPY) weakness.

Standard Chartered research notes: