Consumer Price Index (CPI) Trends in Japan and the Bank of Japan's Monetary Policy: Recent Analysis
Japan's national consumer price index (CPI) rose 2.5% in May compared to the same month last year. This was mainly due to rising energy prices, and core CPI growth expanded for the first time in 3 months. However, this rate of increase fell short of market expectations of 2.6%. Also, core core CPI, which excludes energy, also rose 2.1%, and growth has shrunk for 9 consecutive months. These figures suggest that there is still a continuing risk of price increases.
1. Consumer Price Index Details
Core CPI rose 2.5% from the same month last year. It falls short of market expectations of 2.6%. Energy prices rose 7.2%, a major factor boosting overall CPI. Core core CPI (excluding fresh food and energy) rose 2.1%. It falls short of market expectations of 2.2%. As can be seen from this data, while rising energy prices are boosting overall prices, core CPI growth is shrinking, so there is a possibility that underlying upward pressure on prices is weakening.
2. Bank of Japan's monetary policy outlook
Bank of Japan (BOJ) Governor Ueda Kazuo received the current price data and did not rule out the possibility of additional interest rate hikes at the July decision meeting. The governor stated that “it is quite possible that policy interest rates will be raised in some cases,” and the timing of interest rate increases depends on data on the economy, prices, and financial conditions. In particular, attention is being paid to whether wage increases will spread to service prices, and this will be an important factor influencing future price trends. Also, as the depreciation pressure on the yen continues to reach 159 yen per dollar, the risk of rising prices is being feared.
3. Reduction in government bond purchases
At the meeting the other day, the Bank of Japan decided on a reduction policy for long-term government bond purchases of about 6 trillion yen per month. At the July meeting, we plan to announce specific plans for the next 1 to 2 years. Governor Ueda stated that this reduction “the formation of long-term interest rates can be left to the financial market more than before,” and is considering a reduction on an appropriate scale.
✔️ Summary
Future forecasts The results of the consumer price index for May showed that overall prices continued to rise due to rising energy prices, even though they fell below market expectations. The Bank of Japan is carefully considering the possibility of additional interest rate hikes in preparation for the July decision meeting. Attention is being paid to what kind of policies will be adopted based on future data.
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