Japan’s headline and core inflation likely to have accelerated slightly in April

The April consumer price inflation data for Japan is set to be released on Friday. Based on the available data, the country wide headline and core inflation are expected to have accelerated a bit in April. According to a DBS Bank research report, both the figures are likely to have risen 0.4 percent year-on-year in April from 0.2 percent in March. These two indicators are susceptible to the movements in the USD/JPY and oil prices.

The Bank of Japan concentrates on the core-core CPI that strips both fresh food and energy prices. The core-core CPI is expected to have remained close to zero in April at 0.1 percent, stated DBS Bank. The output gap that usually leads core-core CPI by three quarters has turned positive since the third quarter of last year. However, it has not been huge enough to create the demand-side price pressures and to stimulate CPI figures considerably. According to BoJ’s estimates, the output gap widened to 0.6 percent of GDP as of the fourth quarter of 2016.

“Taking into account the adoption of new GDP statistical methods since end-2016, we reckon that the output gap is smaller than the BOJ’s estimate, at only 0.1% in 4Q16 and 0.3% in 1Q17”, said DBS Bank.

Accordingly, core-core CPI is expected to rise just mildly in the quarters ahead, reaching just around 0.5 percent to 0.6 percent by the end of 2017. Subdued inflation would thus continue to pose challenges on the central bank’s monetary policy in the near term, added DBS Bank.