Headline CPI Below 3% BUT Core Measures Higher Than Market Expectations

Japan's headline inflation rate has dipped to 3% y/y for the first time in over a year, supporting the BOJ’s belief that the upward pressure on prices is plateauing. This development may temper expectations of an imminent end to negative interest rates.

• However, it's important to note that both the core (ex-fresh food) and core-core (ex-fresh food and energy) inflation measures exceeded expectations, standing at 2.8% y/y and 4.2% y/y, compared to estimates of 2.7% and 4.1%. The previous readings were 3.1% and 4.3%, respectively.
• These nationwide figures align closely with data from Tokyo, which is a leading indicator that previously indicated a noticeable slowdown in the momentum of price hikes.
• The key question now is whether today’s data is likely to impact the BOJ’s inflation projections.
• The JGB market has been pressured this week by news from Bloomberg sources that “the BOJ is likely to discuss raising its inflation projection for fiscal year 2023 and 2024 at its policy meeting later this month, extending the period in which it sees prices hitting or exceeding its 2% goal.” This built on last week’s narrative from Kyodo News sources, which suggested that “the BOJ is considering raising its inflation outlook for the current business year to next March to near 3%.”