Japan: CPI weaker than market forecasts overall – Nomura

Research Team at Nomura, notes that the August all-Japan core CPI (general, excluding fresh food) was -0.5% y-y, unchanged from the 0.5% y-y decline recorded in July and below the consensus forecast (Bloomberg survey median) of -0.4%.

Key Quotes

“The breakdown shows that the core CPI, which excludes energy and food (except alcoholic beverages) and the core food CPI (food CPI ex fresh food and alcoholic beverages) contributed significantly to the decline in the core CPI, but that this was counteracted by energy prices, which slowed the decline. The all-Japan core CPI in August was +0.2% y-y, slowing from +0.3% in July (the consensus forecast was +0.2%). The inflation rate continued to fall for durable goods. We think the decline in the inflation rate for durable goods and food was influenced to a large degree by yen appreciation weighing on prices. August estimates for the Bank of Japan's core CPI (excluding fresh food and energy) put inflation based on this measure at 0.4% y-y, slower than the July reading of 0.5%.

September Tokyo core CPI turned downward y-y

The Tokyo core CPI for September was -0.5% y-y, weaker than the August figure of -0.4% and the consensus forecast of -0.4%. The breakdown shows negative impacts from the core and core food CPIs, particularly the former. Growth in the Tokyo core CPI turned negative in September, to -0.1%, down relatively sharply from +0.1% in August and falling below zero (based on our calculations excluding the impact of the consumption tax hike) for the first time since April 2015. While some of this can be explained by special factors such as the drop in mobile phone prices, growth also slowed for a wide range of other durable goods. The general structure was similar to that of the nationwide CPI, and appears to show continued downward pressure on prices from the stronger yen. Estimates for the Bank of Japan's core CPI for Tokyo (excluding fresh food and energy) put inflation based on this measure at +0.1% y-y in September, down from +0.3% in August and falling close to zero.

We see risk that the expected return to positive territory by the all-Japan core CPI could be delayed

These results were weaker than market consensus forecasts overall. Looking forward, we think the core CPI and the BOJ’s core CPI are likely to continue to slow as a result of yen appreciation. With the core CPI, we expect the negative contribution from energy prices to steadily fade. Inflation momentum looks weak overall for other goods and services, however, so we do not expect any real acceleration in the core CPI. We currently forecast a return to positive territory by the core CPI in the Jan-Mar 2017 quarter, but we now think investors should note the risk that this timing could potentially be delayed further.”