Japan Consumer Price Index

Inflation in Japan remains stubbornly flat in June

Published monthly by the Ministry of Internal Affairs and Communication. Updated to the month of June/July 2017 (published on July 28th, 2017).

Recent data trend:

In June 2017, BoJ's favorite inflation measure, CPI excluding fresh food and energy, remained unchanged from a year ago (YoY). The other core CPI measure, CPI excluding food and energy, fell by 0.2% YoY. Despite the seemingly improving economic activities and an increasingly tight labor market in Japan, core inflation measures remain stubbornly close to zero.

In the past four years, the BoJ tried to achieve a reflation in Japan by a multiple wave of aggressive quantitative easing with an aim of weakening the yen, boosting corporate profits and strengthening economic activities. While the yen did weaken and corporate profits grew by 60% between 2012 to 2017, it was apparently not enough to bring about a reflation in Japan. Despite the low unemployment rate (2.8% in June 2017), the wage inflation is largely absent, except in the periphery of part-time workers' hourly wage which rose by 2.4% YoY in June 2017 according to Recruit Jobs survey. 

In July 2017, the BoJ had to announce that it is shifting its target year to achieve its inflation target to 2019. BoJ has delayed its timeline to achieving the inflation goal of 2% for the sixth time since BoJ governor Kuroda unveiled its asset purchase program in 2013. This habitual delay is hurting the credibility of the BoJ. For our view on how the loss of credibility is affecting the BoJ, please see here.

In our view, the aggressive easing by the BoJ in the past 4 years was not for naught though. It did create a potential path to achieving reflation. The output gap in the economy is turning positive (0.8% of potential GDP for January-March 2017). If a favorable global economic environment could be maintained for another several years, a reflationary pressure could finally be built up within Japan. 

The big question is if the BoJ has the means to maintain the current level of monetary easing. The BoJ has already started to taper its JGB purchase. While the tapering was probably a necessary step to avoid completely choking off the liquidity in the JGB market, it risks unnerving JGB market participants who suspect that bonds are overpriced and cannot be supported if the BoJ steps away. As other central banks in the world are moving to tighten their monetary policy, we will see if the BoJ could maintain its control of the bond market. Our view is that the BoJ has already bought too much, leaving the market too iliquid to handle shocks,but we shall see.

Brief overview of “Consumer Price Index”

Consumer Price Index (CPI) measures the weighted average price level of goods and services consumers pay. Its weights are determined by the spending pattern of household in a standard year, currently set at 2015. The Bank of Japan targets its core measure, CPI excluding fresh food. The US-styled core measure, CPI excluding food and energy, is also published in the official statistics release. The government currently does not officially publish trimmed CPI measures. Monthly CPI reports are published toward the end of the following month. The preliminary CPI report for Tokyo area is published one month in advance and it is often regarded as a leading indicator for the national CPI.

Since late 1990s, CPI in Japan has been on a very mild declining trend. Between 1998 and 2012, CPI fell by 3.9% or by 0.3% per year on average. Excluding food and energy, CPI declined by 6.4%, or by 0.6% per year on average in the same period. Japan had unusually lower CPI inflation than its global peers even prior to 1998. Between 1980 to 2000, average yearly inflation in Japan was 1.4%, sizably lower than the average of 3.6% in G7 countries.

For more information, visit the official government page

National CPI by item

Source: MIAC, JMA.

Source: MIAC, JMA.

CPI and Sub-Components

Source: MIAC, JMA.

The Next Release Date:  August 25th, 2017.

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