Japan core inflation set to accelerate, keeping BOJ on track for more rate hikes
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Japan core inflation set to accelerate, keeping BOJ on track for more rate hikes

TOKYO: Japan’s nationwide core consumer inflation likely accelerated to 2.6 per cent year-on-year in May from 2.2 per cent in the previous month, a Reuters poll of 18 economists showed on Friday (Jun 14), keeping the central bank on track to raise interest rates further in coming months.

While the core consumer price index (CPI), which excludes fresh food, is set have received a boost from an increase in renewable energy levy, some analysts expect a slight slowdown in the so-called narrower core-core inflation excluding fresh food and energy.

The core inflation has not fallen below the Bank of Japan’s (BOJ) 2 per cent target for more than two years.

“As passing on costs of a weak yen and commodity inflation run their course, and as the renewable energy factor fades away, the trend inflation would slow down slightly,” said Atsushi Takeda, chief economist at Itochu Economic Research Institute. “Still, we don’t expect inflation to undershoot the BOJ’s 2 per cent target, due to home-made inflation stemming from wage hikes and rises in service prices.”

“As such, the BOJ is on track towards normalising monetary policy, and I expect it to raise interest rates in September.”

The BOJ decided on Friday to start trimming its huge bond purchases and said it will announce a detailed plan next month on reducing its nearly US$5 trillion balance sheet, taking another step toward retreating from its massive monetary stimulus.

The CPI data will be published by the internal affairs and communications ministry at 8.30am June 21/2330 GMT Jun 20.

Separate data by the Ministry of Finance (MOF) is forecast to show Japan’s exports rose 13.0 per cent year-on-year in May, while imports also probably grew 10.4 per cent, which would leave the trade balance in a deficit of ¥1.31 trillion (US$8.34 billion).

“While the global economy remains in low growth mode, exports strengthened the increasing trend from a year earlier,” said Takeshi Minami, chief economist at Norinchukin Research Institute. “However, this was due to rising export prices caused by a weak yen. In terms of volume, exports probably struggled to accelerate.”

In a further worrying sign of slowdown in business investment, core machinery orders, leading yet volatile indicator of capital spending in the coming six to nine months, were expected to fall 3.1 per cent in April from the previous month – the first decline in three months.

Cabinet Office data out on Monday 8.50am/2350 GMT Sunday also will likely show core orders fell 0.1 per cent year-on-year in April.

Source: CNA