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By Hiroshi Inoue
TOKYO (MNI) - The year-on-year rise in the Tokyo core consumer price index
excluding fresh food accelerated to +0.8% in July from +0.7% in June but Bank of
Japan officials maintain the view that inflation is slow to response to a
sustained modest economic recovery.
In the face of the gradual pickup in inflation, the BOJ board is expected
to maintain large-scale monetary easing for a prolonged period while watching
for its side-effects so that easing is sustainable.
At its two-day policy meeting ending on Tuesday, the board is expected to
revise down its median inflation forecasts in each of fiscal 2018, 2019 and 2020
In central Tokyo, the core CPI rose 0.8% on year in July for the 13th
straight year-on-year rise, with the pace of increase accelerating from +0.7% in
June and +0.5% in May.
This indicates the year-over-year rise in the national core CPI will also
accelerate in July from the 0.8% rise in June in data due on Aug. 24.
The core-core CPI (excluding fresh food and energy) -- a key indicator of
the underlying trend of inflation -- rose 0.5% on year in July, also up from
+0.4% in June.
--MOMENTUM TOWARD 2%
The pickup in inflation remains slower than the BOJ expected earlier. The
upward pressure on prices from rising materials and labor costs has been somehow
offset by corporate efforts to raise labor productivity by investing in
automation and information technology.
But BOJ policymakers will keep their view that the momentum toward the 2%
price target is "maintained" as the upward pressure on prices stemming from the
improving output gap continues.
--HIGHER PRODUCER PRICES
The uptrend in key producer price indexes has become more apparent in
recent months, indicating that firms will have to pass along higher costs onto
retail prices, BOJ economists analyze.
The corporate goods price index (CGPI) rose 2.8% on year in June,
accelerating from +2.7% in May and +2.1% in April, close to the recent high of
+3.0% marked in December 2017. It was led by higher costs for fuels,
electricity, metals and takeout food.
In addition, the service producer price index (SPPI) gained 1.2% on year,
also up from +1.0% in May, due to higher prices for software development,
advertisements and hotels. It was the highest increase since December 1992, when
it rose 1.3%.
At next week's meeting, BOJ board members will update their outlook for
economic growth and inflation on the basis of the analysis of slow price rises
to be compiled by BOJ staff. They will also discuss how to deal with accumulated
side-effects of large-scale easing.
--GOODS PRICES RISE
BOJ economists are encouraged by higher goods prices in the July Tokyo CPI
data as they were concerned about slow gains in goods prices, compared with the
recent pickup in generally depressed service prices.
The prices of goods excluding volatile fresh food rose 1.2% on year in
July, with the pace of increase accelerating from +1.0% in June, indicating that
firms are gradually passing higher costs onto consumers. The service prices,
which account for just over a half of the CPI basket, rose 0.5% on year in July,
unchanged from +0.5% in June.
The prices for eating out rose 1.0% on year in July, up from +0.8% in June,
due mainly to the recent markups in wholesale beer prices for restaurants and
bars. The food service industry has been hit by rising raw material and labor
--MNI Tokyo Bureau; tel: +81 90-4670-5309; email: firstname.lastname@example.org