Japanese core inflation likely to reach 1 pct in Q3, momentum to ease by 2018-end - Barclays

Japan’s inflation continued to be sluggish in June. Even if the nationwide CPI ex-perishables strengthened slightly to 0.8 percent year-on-year in June, the CPI ex-perishables and energy dropped further to 0.2 percent year-on-year, almost flattening again. According to a Barclays’ research report, core inflation is expected to reach the 1 percent threshold in the third quarter; however, momentum is likely to ease into the year-end, while the BoJ core hovers around 0.5 percent year-on-year.

“In this context, we expect the BoJ to lower its core CPI inflation forecasts for FY18 (+1.3 percent as of April, versus a market consensus of +0.9 percent) and FY19 (+1.8 percent versus +0.9 percent) when it publishes its quarterly Outlook Report at the end of its 30-31 July monetary policy meeting”, stated Barclays.

But such downward revisions are unlikely to lead directly to prolonged yield curve control or further easing. Indeed, the Bank of Japan Policy Board members have remarked on the side-effects of prolonged YCC since BoJ Governor Kuroda touched on the notion of a “reversal rate” during a speech in November 2017. The central bank is expected to conduct a comprehensive assessment analysing such side-effects and the factors behind Japan’s sluggish inflation, concluding that the former counter most of the benefits of its policy and that the latter are largely factors unrelated to economic fundamentals, stated Barclays.

At 20:00 GMT the FxWirePro's Hourly Strength Index of Japanese Yen was bullish at 90.8863, while the FxWirePro's Hourly Strength Index of US Dollar was highly bearish at -110.749. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex