JAPAN DATA: PPI Headline Slows, Business Sentiment Rebounds For Q3

Japan August PPI was down 0.2% m/m, against a flat consensus expectation. This left the y/y outcome at 2.5% against a 2.8% forecast and 3.0% prior. 

• The chart below overlays this PPI outcome against headline Japan CPI y/y. The directional correlation between the two series has remained reasonable, with PPI often leading shifts in the CPI. The August downtick suggests some downside in CPI may materialize, although we are still coming off elevated levels from a headline CPI standpoint (particularly relative to the BoJ's longer term 2% target). Hence today's result may not shift BOJ thinking a great deal.
• In terms of the detail the manufacturing PPI fell -0.2%m/m, while softness elsewhere was evident in terms of commodities.
• Other data showed the all industry and large manufacturing sentiment improved in Q3, relative to Q2 outcomes. Large firms, all industry rose to 5.1 from 0.4, while manufacturing was 4.5 from -1.0 in Q2. The outlook if further improvement in Q4 before some softening in Q1 next year.  

Fig 1: Japan PPI Versus CPI - Y/Y 

Source: MNI - Market News/Bloomberg