Japan’s Inflation Rate Expected to Fall, Impacting Monetary Policy

Summary

  • Recent surveys indicate a possible fall in December wholesale prices, marking the first decline in almost three years.
  • This has led to market speculation that the Bank of Japan may postpone its monetary policy re-examination at the impending January meeting.
  • Additionally, the nationwide core consumer price index (CPI) is projected to have risen 2.3% in December, slightly down from November’s 2.5% rise.
  • The Corporate Goods Price Index (CGPI), a measure of wholesale inflation, is predicted to have dropped 0.3% from the previous year.
  • Analysts predict an end to Japan’s cost-driven inflation.

Japan’s Monetary Decisions Amid Economical Predictions

A recent poll suggests that December wholesale prices in Japan have likely seen a decrease for the first time in almost three years. This speculation anticipates that the Bank of Japan might delay the advent of monetary normalisation in its upcoming January 22-23 policy discussion.

Declining Inflation and the CPI Forecast

The CPI, excluding fresh foods but accommodating energy items, is expected to have increased 2.3% in December year-on-year, marking a decrease from November’s 2.5% uptick. Should this prediction hold, it will register as Japan’s lowest inflation rate since the 2.2% recorded in June 2022.

“The rate of food price increases is decelerating, while the cost of utilities is falling more rapidly,” Mitsubishi UFJ Research and Consulting Economist, Shunpei Fujita, commented.

CGPI and Signs of Halting Inflation

The Corporate Goods Price Index (CGPI), a measure of wholesale inflation, is suggested to have dropped 0.3% in December year-on-year. This decrease is poised to be the first since February 2021.

Analysts predict that Japan’s cost-push inflation may be drawing to a close, possibly easing the stress on the central bank to pull away from the long-standing easy monetary policy.

Schedule and Expectations for Future Economical Data

Data regarding December CPI will be released at 8:30 a.m. on Jan. 19 (2330 GMT, Jan. 18), while CGPI data is scheduled for 8:50 a.m. on Jan. 16 (2350 GMT, Jan. 15).

In other aspects of the poll, economists speculate a 0.8% decline in core machinery orders for November, signalling the first contraction in three months.

Trade data will be made public at 8:50 a.m. on Dec. 20 (2350 GMT, Dec. 19).

These predicted factorial changes have significant implications on the forex market, potentially impacting the trading of Japanese yen and related assets.

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