29 Feb 2016
JPY: Inflation data disappoint the BOJ – Nomura
Yujiro Goto, Research Analyst at Nomura, notes that the Japanese core CPI inflation slowed to 0.0% y-o-y in January, from +0.1% the previous month.
Key Quotes
“Although Japanese core CPI inflation recovered in Q4 last year, it slowed again to 0.0%. Core CPI, which excludes food and energy, also slowed to +0.7% y-o-y from +0.8%. More importantly for the BOJ, its new core CPI measure which excludes fresh foods and energy slowed to +1.1% y-o-y from +1.3%, for the first time since January 2015.
In its January statement, the BOJ argued that the underlying trend in inflation has been rising steadily, but the fall in the BOJ’s new core CPI suggests the underlying inflation trend is now likely weakening. The BOJ’s new core CPI adds food excluding fresh foods to core CPI inflation (which excludes all food and energy), and CPI-based food excluding fresh foods has been accelerating, supporting the BOJ’s new core CPI.
However, January’s CPI data showed that CPI food excluding fresh foods slowed to +2.11% from +2.31% the previous month, for the first time since July 2015. Import food prices, which tend to lead CPI-based food inflation by 6-12 months, have entered negative territory. Import food price inflation slowed further to -10.1% y-o-y in January, the lowest since October 2009. JPY depreciation has been supporting food prices in Japan, but it is now clearly turning.
The BOJ’s near-term policy responses will depend on financial market movements, but slowing inflation also justifies the Bank’s easing decisions. Japanese economic growth has also disappointed Japanese policymakers. The likelihood of fiscal stimulus is also now rising.
At the same time, BOJ Governor Kuroda’s comment that “excessive JPY gains have corrected in the past three years” suggests FX intervention at the current level is still unlikely. In the near future, external factors, such as G20 and US data are important for USD/JPY, while policy responses in Japan will likely be more accommodative as we approach the upper house election scheduled this summer.”
Key Quotes
“Although Japanese core CPI inflation recovered in Q4 last year, it slowed again to 0.0%. Core CPI, which excludes food and energy, also slowed to +0.7% y-o-y from +0.8%. More importantly for the BOJ, its new core CPI measure which excludes fresh foods and energy slowed to +1.1% y-o-y from +1.3%, for the first time since January 2015.
In its January statement, the BOJ argued that the underlying trend in inflation has been rising steadily, but the fall in the BOJ’s new core CPI suggests the underlying inflation trend is now likely weakening. The BOJ’s new core CPI adds food excluding fresh foods to core CPI inflation (which excludes all food and energy), and CPI-based food excluding fresh foods has been accelerating, supporting the BOJ’s new core CPI.
However, January’s CPI data showed that CPI food excluding fresh foods slowed to +2.11% from +2.31% the previous month, for the first time since July 2015. Import food prices, which tend to lead CPI-based food inflation by 6-12 months, have entered negative territory. Import food price inflation slowed further to -10.1% y-o-y in January, the lowest since October 2009. JPY depreciation has been supporting food prices in Japan, but it is now clearly turning.
The BOJ’s near-term policy responses will depend on financial market movements, but slowing inflation also justifies the Bank’s easing decisions. Japanese economic growth has also disappointed Japanese policymakers. The likelihood of fiscal stimulus is also now rising.
At the same time, BOJ Governor Kuroda’s comment that “excessive JPY gains have corrected in the past three years” suggests FX intervention at the current level is still unlikely. In the near future, external factors, such as G20 and US data are important for USD/JPY, while policy responses in Japan will likely be more accommodative as we approach the upper house election scheduled this summer.”