Research Team at Nomura, notes that the all-Japan core CPI (general index excluding fresh food) was +0.0% y-y in January, in line with the consensus (Bloomberg survey median) forecast and down from +0.1% in December 2015.

Key Quotes

“The all-Japan core CPI was +0.7% y-y (consensus: +0.7%), down from +0.8% in December, weighing on the core CPI. Durable goods including TVs, room air conditioners, and refrigerators put downward pressure on the inflation rate. The core food CPI (excluding fresh food and alcoholic beverages) inflation rate in January was +2.2%, down from +2.5% in December. Estimates for the Bank of Japan's core CPI excluding fresh food and energy put inflation based on this measure at +1.1% in January, versus +1.3% in December.

Tokyo core CPI in February above consensus forecast: The core CPI for Tokyo was -0.1% y-y in February, compared with the consensus forecast of -0.2% and in line with the January reading. The Tokyo core core CPI inflation rate in February was +0.5%, up from +0.4% in January (consensus: +0.4%), making a positive contribution to Tokyo core CPI inflation. Consumer durables price inflation remained weak, but prices of clothing picked up after falling sharply in January amid fallout from warm winter weather. Against a backdrop of falling crude oil prices, energy price inflation in February was -13.5% y-y, versus January's -12.3%, weighing on the Tokyo core CPI. The core food CPI (excluding fresh food and alcoholic beverages) inflation rate was +2.2%, unchanged from January. Calculation for the BOJ-version core CPI gives an inflation rate of +1.0% for February, up from +0.8% for January.

All-Japan core CPI inflation rate likely to narrow on low oil prices, slowing yen depreciation: The Tokyo inflation rate was slightly higher than expected in today's set of figures. In our view, however, this probably reflects the impact of slowing yen depreciation, bearing in mind weak inflation rates for consumer durables and core food. We think the negative impact of energy prices on inflation rates is unlikely to drop out any time soon, taking as our reference point crude oil prices in the futures market. We also see a high probability of gradually weakening upward pressure on prices from yen depreciation. We expect the all-Japan core CPI inflation rate to be slightly negative y-y during 2016.”

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