Japanese CPI data released last night registered another fall and core CPI moved closer to deflationary region.

  • National CPI dropped to 2.2% YoY from previous 2.4% YoY, whereas core CPI fell towards 2% from 2.1% on a yearly basis.
  • Consumer prices growth in Tokyo remained at same level with headline at 2.3% and core at 1.7% YoY.

Issues –

Retail sales and consumer spending continue to fall with increase in price. After decades of deflation Japanese consumers are yet to recover from higher prices and consumption tax hike.

  • Retail sales fell for second consecutive month after subdued rise in latter half of 2014. Retail sales fell by -1.8% compared to previous -2%.
  • BOJ officials have noted higher prices are deterring consumers to spend more. House hold consumption has declined for straight 11 months at a row. Latest data points at further decline by -2.9%.

BOJ stance –

  • BOJ has been easing policy with massive purchase of securities name QQE (Qualitative and Quantitative Easing) at ¥ 80 trillion per month. However it seems like so far the impact has been mute over inflation.
  • Nevertheless policy debates are heating up at BOJ as officials hold different views over the proper measure to stimulate economy. BOJ increased the pace of purchase last year in October with a vote of 5-4 in favor of policy changes.
  • Recently BOJ official Mr. Harada mentioned further easing could be introduced should the CPI fall further. In contrast Mr. Ishida, raised concern over the current policy’s ability to strike inflation.
  • Mr. Abe’s advisor, Mr. Honda warned against further easing as he remains worried that the policy might heat up the economy and strike inflation much higher and faster. At least one BOJ official is asking for reduction in pace of purchase.

Impact –

  • Yen might move clueless, taking cues from dollar movement and risk aversion until policy consensus arrives at BOJ.
  • Moreover Prime Minister Abe might push the sales tax hike scheduled for this year, further in future. That would be very positive for Nikkei. Yen is currently trading at 119.3 and Nikkei at 19250.

The material has been provided by InstaForex Company – www.instaforex.com