Japan

Research evidence excerpt

Japan

oya, in line with consensus but a at 3.6%oya.

tenth above the JPM forecast (Figure 1). The CPI prints con-

tinue to be dragged down by policy measures—including With underlying inflation momentum firming, we expect sec-

energy and education subsidies, free school lunch, temporary ond-round effects from energy price shocks to become more

waivers of water charges and free nursery. In addition, a evident from this summer. Producer prices already point to

meaningful portion of the %oya increase this month reflects a sharp increases in oil-derived chemicals and plastics, as well

roughly 0.2%pt base effect stemming from last year’s water as transportation costs. With producers facing significant cost

charge waiver, which was not implemented nationwide. Even pressures, we expect these to begin feeding through more

so, excluding these policy-related distortions, the underlying broadly into consumer prices, particularly for food and core

inflation trend appears to be firming. goods. As a result, we expect both core (ex. fresh food) CPI

and underlying inflation to accelerate further, with core CPI

Figure 1: Tokyo core CPI

rising to above 3%oya by year-end.

%oya Official core

(ex. fresh food)

BoJ core Solid PMI signals steady growth 4 (ex. fresh food and energy)

3 Japan’s June all-industry PMI rose by 1.4 points to 52.5, more

2 than reversing the prior month’s decline. The improvement

1 reflects gains in both manufacturing and services PMI, with

0 both indices coming in stronger than we expected. While the

Core -1 level remains below the 1Q highs that marked this cycle’s (ex. food and energy)

-2 peak, it is still above last year’s readings. Overall, this sug-

16 17 18 19 20 21 22 23 24 25 26 27 gests that activity slowed in 2Q amid energy-price shocks, but