JAPAN DATA: Headline CPI Moderates, Services Prices Tick Up Though
Japan's nationwide CPI print for June was close to market forecasts. Headline CPI printed 3.3%y/y, in line with consensus expectations, while the prior outcome was 3.5%y/y. The core measure which excludes fresh food was 3.3%y/y as well (forecasts were at 3.4%, May's outcome was 3.7%). The measure which also excludes energy was 3.4%y/y, against a 3.3% forecast, which was also the prior outcome.
- The chart below plots these three inflation measures, with headline and core ex fresh moving off recent highs. Still, the core ex fresh food and energy measure ticked up to 3.4%y/y, which is highs back to the start of 2024.
- The measure which excludes all food and energy was steady at +1.6%y/y. Services prices edged up to 1.5% from 1.4% in May.
- In terms of the m/m outcomes, goods prices fell by 0.1%, while services prices rose 0.3%m/m.
- Sub category trends were mostly softer though (albeit un-seasonally adjusted). Food was up 0.2%m/m, but fresh food fell by 2.0%. Utilities were down -1.0%m/m, so too was entertainment. Only household goods, up 0.1%m/m was positive, with other categories down modestly or flat for the month.
- Looking ahead focus will be on whether the June services price rise is sustained. Such a backdrop would give the central bank more confidence around sustainably achieving its inflation target. Still, this data is unlikely to shift near term BoJ thinking, with the central bank seen on hold at the end July meeting outcome.
Fig 1: Japan CPI Trends Y/Y - Mixed Outcomes In June
Source: Bloomberg Finance L.P/MNI
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JGBS: Futures Rally Overnight With US Tsys, Reversing Post-BoJ Sell-Off
In post-Tokyo trade, JGB futures closed higher, +23 compared to settlement levels, after US tsys finished with a bull-flattener. Rising Middle East tensions, including the possibility that the US will join the war, lent risk-off support.
- This move reversed the sell-off seen following yesterday’s BoJ decision. The BoJ kept rates at 0.50%, as widely expected. The central bank did announce that it would trim bond buying by 200bn/per quarter from April 2026 next year.
- (Bloomberg) - "US President Donald Trump and Japanese Prime Minister Shigeru Ishiba failed to reach an agreement on a trade package on the sidelines of the Group of Seven summit, an outcome that leaves the Asian nation inching closer to a possible recession as the pain of US tariffs hits its economy."
- "Setting aside the human tragedy, the Israel-Iran clash poses a serious upside risk to Japan's inflation. The spike in oil prices has likely caught the Bank of Japan off guard, just as it was counting on easing energy costs to temper consumer-price pressures. Japan depends on oil for about 35% of its energy needs and sources nearly all of its crude from the Middle East." (BBG)
- Today, the local calendar will see Trade Balance and Core Machine Orders data.
