Inflation Data Close To Forecasts, May Not Be Enough To Shift July Tightening Expectations

Japan June National CPI was a touch below market expectations. The headline rose 2.8% y/y, versus 2.9% forecast (it was unchanged from the May outcome). The core ex fresh food measure rose 2.6%, versus 2.7% forecast and 2.5% prior. The measure which excludes ex fresh food and energy was 2.2%, as expected and a slight uptick from May's 2.1% read.

• The metric which excludes all food and energy was 1.9%y/y, versus 1.7% prior but this is still comfortably sub the pace seen earlier this year, late 2023.
• In m/m terms, we were positive for the headline and key core measures, with ex fresh food and energy at 0.3%m/m, versus 0.1% in May. The core measure excluding all food and energy was fat in m/m terms (albeit not seasonally adjusted). This follows several months of positive gains for this measure.
• By sub category, it was mixed. Food was a drag (-0.4% m/m), along with clothing, (-0.2%m/m) and entertainment (-0.9% m/m). Utilities +3.5%m/m and medical care (+0.6%m/m) was the main positives.
• In y/y terms, food (+3.6%), utilities (+7.5%) and entertainment (+5.6%) were the strongest contributors. Education remained negative y/y.
• Overall, the headline metrics have stabilized above 2% y/y, see the chart below (the core measure ex fresh food and energy is in white). Still, the data is arguably not hawkish enough to shift the BoJ hike debate around the July meeting. Market pricing was around 50% for a 10bps hike for the July meeting.
• Recent commentary has questioned whether a hike will take place (see this link from BBG), while our own policy team had this piece from earlier in the week.

Fig 1: Japan CPI Trends

Source: MNI - Market News/Bloomberg