The latest Japanese inflation numbers are in and it ain’t lookin’ pretty! Both the Tokyo and national core CPI readings fell short of expectations, reviving calls for additional stimulus from the Bank of Japan.
The August inflation report showed that the national core CPI is down from 3.3% to 3.1% instead of just dipping to 3.2% while the Tokyo core CPI fell from 2.7% to 2.6% instead of holding steady. Removing the impact of the April sales tax hike on price levels reveals that Japan’s core CPI is just at 1.1%, miles away from the central bank’s 2% target.
Components of the report indicated that price increases were led by higher costs in accommodations, air conditioners and summer clothing – all suggesting that seasonal factors were responsible for keeping inflation afloat. Meanwhile, gasoline prices chalked up a sharp monthly decline, along with consumer electronics.
With the temporary effects of the sales tax hike expected to keep fading in the coming months, inflationary pressures are also likely to subside. This means that BOJ Governor Kuroda and his men will have no choice but to face those nasty deflationary demons again sooner or later!
Implementing another tax hike doesn’t seem to be a viable option, as this might weigh further on Japan’s already feeble economic performance. As it is, the economy has been unable to get back up on its feet, as spending and production took a huge hit after the consumption tax was increased from 5% to 8% earlier this year. Hmm, I wonder what might be an efficient way to stimulate both growth and inflation…
If you’ve answered “quantitative easing”, then we’re definitely on the same page, along with several economic analysts. Former BOJ official Hiromichi Shirakawa estimated that price levels will continue to fall and that the BOJ might add stimulus early next year. Some have even predicted that the weak inflation readings could force the BOJ to lay down its easing plans as early as their next policy meeting in October!
Although there’s no denying that the BOJ needs to boost stimulus at some point, it’s still a question of when BOJ Kuroda would drop his optimistic front and finally admit that the economy is very weak. In his latest testimony, he reiterated that policymakers believe that price pressures will pick up later on due to improvements in the labor market and strong wage growth. For now, he is also welcoming the recent round of yen weakness in the forex market, which could also keep deflation at bay.
Recommended Content
Editors’ Picks
EUR/USD edges lower toward 1.0700 post-US PCE
EUR/USD stays under modest bearish pressure but manages to hold above 1.0700 in the American session on Friday. The US Dollar (USD) gathers strength against its rivals after the stronger-than-forecast PCE inflation data, not allowing the pair to gain traction.
GBP/USD retreats to 1.2500 on renewed USD strength
GBP/USD lost its traction and turned negative on the day near 1.2500. Following the stronger-than-expected PCE inflation readings from the US, the USD stays resilient and makes it difficult for the pair to gather recovery momentum.
Gold struggles to hold above $2,350 following US inflation
Gold turned south and declined toward $2,340, erasing a large portion of its daily gains, as the USD benefited from PCE inflation data. The benchmark 10-year US yield, however, stays in negative territory and helps XAU/USD limit its losses.
Bitcoin Weekly Forecast: BTC’s next breakout could propel it to $80,000 Premium
Bitcoin’s recent price consolidation could be nearing its end as technical indicators and on-chain metrics suggest a potential upward breakout. However, this move would not be straightforward and could punish impatient investors.
Week ahead – Hawkish risk as Fed and NFP on tap, Eurozone data eyed too
Fed meets on Wednesday as US inflation stays elevated. Will Friday’s jobs report bring relief or more angst for the markets? Eurozone flash GDP and CPI numbers in focus for the Euro.