Japan to experience more stagnant inflation

Japan's nationwide CPI (excluding fresh food) likely fell in September. Factors such as the passing on of price increases to products as a result of cost push inflation caused by yen depreciation and the recovery in domestic demand are helping to push up inflation. 

"However, as there will be a base effect due to last year's fall in oil prices from H2 2014 to the beginning of 2015, CPI (excluding fresh food, %yoy) is declining. Japan's nationwide CPI (excluding fresh food) likely fell to -0.1% yoy in September (unchanged from August)", says Societe Generale.

Since July, oil prices have been declining again, and the rebound is weak. The main driver for negative GDP growth in Q2 was weak consumption. It seems that consumers have not yet recovered completely from the deterioration in consumer sentiment after the consumption tax (CT) hike in April 2014, especially as food prices are continuously increasing. 

As a result, consumers have been defensive. In addition, the second CT hike scheduled to start in April 2017 is also suppressing consumer sentiment. Corporates are now aware of the rising risk that further price increases could result in the deterioration of consumer demand. Thus, corporates are cautious about increasing prices.