Low core inflation readings in line with unchanged BoJ monetary policy

Latest inflation figures for March suggest that inflation has peaked earlier this year, and is likely to stabilize at current, low levels.

Looking at March data, we note that the Bank of Japan’s favored core measure (which is CPI inflation minus fresh food and energy product prices) stood at 0.5% YoY, an unchanged reading. The more domestically focused services price CPI was also weak (+0.2% only).

This week’s Tokyo CPI publication will be meaningful as many Japanese firms rise prices at the beginning of a fiscal year.

With respect to Bank of Japan policy, we expect – given the still lower core inflation readings and only very modest rises in medium term inflation expectations – to keep its current policy unchanged. As to economic activity, the latest manufacturing PMI surveys suggest a moderately more solid expansion in the sector, as the subcomponents on current output, new orders and employment increase at faster rates. Of note also that manufacturing firms were able to rise their output prices at a faster rates.

Gero Jung – Chief Economist – Mirabaud AM