Tokyo inflation is hotter than estimates supporting the Boj case for tariff increases
Tokyo CPI inflation rose 3.5% yoy in April (vs 2.9% in March, market consensus 3.3%)
Tokyo inflation increases 3.5% from year to year that is much hotter market expects a significant pickup because the increase in the neglect of education costs is relative to the low base from last year.
The price of education rebounded to 1.6% yoy from -9.3% in March. But inflationary pressure is broader than expected.
The price of fresh food subsided significantly to 4.1% from 13.2% in March, thanks to the government support program. But prices increase widely in other sectors. Thus, core inflation, not including the price of fresh food, jumped to 3.4% in April (vs 2.4% in March, the market consensus was 3.2%). In particular, the price of entertainment and housing rose with a strong 2.8% and 1.5% respectively. In terms of monthly comparison, inflation growth is accelerated to 0.5% month to month, adjusted seasonally, from 0.4% in March. Services rose for the third month in a row, up 0.3% in April. The price of goods rose 0.1% after an increase of 0.4% in March.
April is when the company raises product prices, and this year’s increase is higher than expected. We interpret this pricing behavior because the company clearly moves to continue the increase in input costs to consumers. With the expected solid wage growth this year, it seems that the sustainable inflation expected by the Bank of Japan finally arrived. Thus, the accelerated level of increase makes us hope that Boj will continue to raise interest rates.
BOJ is expected to stand up next week, but it is likely to give an additional tariff increase signal
Given the high level of uncertainty about US trade policy, Boj is likely to maintain the level of policy at next week’s meeting. But with inflation will remain high in the coming months, Boj will continue to increase interest rates in the summer. During the Bilateral As-Japan talks, Yen’s discussion had been muted. But this does not mean the US will not target JPY which is weak during the next round of negotiations. We believe that Boj will tighten when everything becomes clearer, which will make JPY appreciate further.
This seems to be a better way to respond to US criticism of weak JPY, than Japan directly intervene in the foreign exchange market. Uncertainty over the steps of the US tariff to compose the boj tariff increase cycle. We have written in an increase in July, but the possibility of an increase in June.
Source: Ing
