Japan's economy has plodded along for a while, but Nomura in a note this week has pointed to six potential major surprises which, while outside its baseline scenarios, could shake things up, including more retail spending and workers taking time off.
No.1: Higher-than-expected inflation
The absence of inflation has been Japan's bugbear for decades. But now, the dollar has climbed amid rising U.S. interest rates and expectations President-elect Donald Trump's policies will spur inflationary pressure. At the same time, oil prices were rising.
"If the dollar continues to appreciate and crude oil prices continue to rise, the inflation rate in Japan could be much higher than expected," Nomura said. "We need to watch for the possibility that the financial markets could focus their attention on an exit strategy [from Bank of Japan policy] in periods when inflation is rising."
To be sure, there's not much sign of inflation yet. On Tuesday, government data showed Japan's core consumer price index (CPI), which includes oil products, but not volatile fresh food prices, fell for a ninth straight month in November, slipping 0.4 percent on-year. That's well off the Bank of Japan's (BOJ) 2 percent inflation target.
No.2: The BOJ eases even if inflation rises
Nomura didn't expect the BOJ would take active measures if inflation were to recover, nothing that core CPI was set to turn positive as energy prices come off lows. But Nomura also noted the central bank could surprise.
"This scenario is one in which, having switched to a war-of-attrition strategy, the BOJ sees a recovery in the inflation rate as a rare opportunity and implements additional easing to encourage a weaker yen, spurring a rise in inflation," Nomura said.