Japan: CPI inflation at a five year high

In June, the CPI excluding fresh food (the so-called core rate, the BoJ’s preferred measure) was up 0.4% over the year, standing at the highest level since November 2008

In June, the CPI excluding fresh food (the so-called core rate, the BoJ’s preferred measure) was up 0.4% over the year, i.e. 0.4 point higher than in the previous month. It thus stood above the zerothreshold for the first time since October 2012 and at the highest level since November 2008. The core rate for Tokyo in July, which is published one month ahead of the national index, rose from 0.2% to 0.3%, recording the third consecutive positive reading. This is the first time since 2009.
The objective of the BoJ’s policy is to defeat deflation. The Bank will continue its quantitative and qualitative easing to achieve the 2% inflation objective. Following its monthly meeting in July, the Board noticed for the third consecutive time that some indicators suggest a rise in inflation expectations. Indeed the yield on the 10-year JGB has risen by about 20 basis points to around 0.80% since the announcement of the new monetary policy on 4 April.
The governing LDP won victory in the Upper House elections on 21 July. This gives the Abe government a majority in both houses of parliament for the first time since 2007. Shinzo Abe has thus three more years left to implement the so called “abenomics”, before next national election to be held in 2016. This gives him a good chance to implement the announced reforms. Following his electoral victory, the Prime minister pledged to keep his focus on the economy and suggested he would defer his ambition to rewrite the country’s constitution. However, details of structural reforms and deregulation have been scarce so far. A more concrete set of proposals has been promised for September. But the risk is that deputies might put pressure on the government for more fiscal stimulus.

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