Japan’s price growth increases pressure on BoJ

Summary:

• Headline price growth moved down in August
• Core inflation measures were mixed
• Data increases pressure on BoJ to take action next month

The Bank of Japan has long been failing in achieving its price target and it looks like nothing is going to change in the foreseeable future. In August, headline inflation decelerated to 0.5% from 0.3% in annual terms, and the measure stripping out fresh food also dipped to 0.5% from 0.6%. Although both indicators had been forecast to decline in August, the release underlined that any pick-up toward the 2% aim is going to take a long time. As a result, one may suppose that investors may even strengthen their bets on the BoJ next month to take any steps to make policy yet easier. Let us remind that at its meeting concluded on Thursday the BoJ suggested it would make a review of inflation and other economic variables in October. Moreover, Governor Haruhiko Kuroda suggested during his press conference that a steeper yield curve was desirable (in our view, it would require to take the short-end of the curve down as the long-end is unlikely to rise given the cloudy outlook for economic growth) adding that he was more inclined toward easing now than at the last meeting.

The BoJ’s inflation target has been unattainable for a long time and it looks like it will remain elusive in the foreseeable future. Source: Bloomberg