Research Summary

The report discusses the recent inflation numbers from Japan, which came in lower than expected on both the headline and core level. The Bank of Japan (BoJ) continues to see underlying inflation much lower than expected. Most of Japan’s inflation comes from cost-push factors, i.e., input costs increasing because of a weaker JPY. The BoJ is most concerned about a stable inflation rate fueled by consumption and spending, instead of increasing costs. They want to see increases in real wages and household spending. However, data shows that Japan’s real wages remained negative for the 14th straight month, and household spending fell for the 4th month.

Actionable Insights

  • Monitor the BoJ’s policy: Despite the lower inflation, it’s unlikely that we will see a change to overall policy. There’s some discussion on a mild tweak in the Yield Curve Control (YCC) strategy, but traders see even that as unlikely at this stage.
  • Watch for revisions to forecasts: During the upcoming BoJ meeting, there may be a possible revision to forecasts that are released with this meeting.
  • Observe the JPY and Nikkei 225: The JPY has given up some of its strength in the last few days, and the Nikkei 225 needs to close above 33100 for the index to gather momentum.

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