Recapping the inflation data from Japan earlier- higher but might slow BOJ rate hikes

Earlier in the session we had higher inflation reported from Japan, PPI/Corporate Goods Price Index:

• Japan PPI (May) +0.7% m/m (expected +0.4) and +2.4% y/y (expected +2.0%)
• the fastest annual pace in nine months

While higher inflation seems, on the face of it, an argument for the Bank of Japan to carry on hiking interest rates, the counterpoint being made is this data actually makes it more difficult for the Bank:

• Yen-based import goods prices are accelerating the pace of the gain (ie weak yen adding upward pressure on prices by pushing up the cost of raw material imports)
• This cost-push type of inflation could cool consumption, and the economy, and thereby dampen the chances of achieving the kind of demand-driven inflation the Bank wants to see before further phasing out stimulus

Reuters report on an analyst take:

• “Consumer inflation may not slow much as wholesale price
  rises re-accelerate, and energy prices are seen rising sharply
  towards this summer” as government subsidies to curb utility
  bills end in June, said Takeshi Minami, chief economist at
  Norinchukin Research.
  “But the BOJ will need to wait for wages to rise and help
  consumption recover” before raising rates again, he added.

***

The Bank of Japan meet on Thursday and Friday this week:

• widely expected to keep its short-term interest rate target unchanged at a 0% to 0.1% range
• but there is chatter it’ll trim back JGB purchases Nikkei: Bank of Japan will ‘consider’ whether to scale back its monthly JGB purchases

This article was written by Eamonn Sheridan at www.forexlive.com.