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ECONOMY

Japan higher activity, but no increase in prices

Japan higher activity, but no increase in prices

Japan CPI, jobless rate, and IP (March 2017)

April 28, 2017: Japan inflation continues to surprise to the downside despite historically tight labour market conditions and firm industrial activity. Headline CPI increased only 0.2% y-o-y in March, coming in below market expectations and slowing from 0.3% in February.

The BoJ’s preferred measure of core CPI, excluding fresh food, rose 0.2% in March, still a long way from the BoJ’s FY2017 forecast of 1.4%. That said, the April Tokyo CPI was slightly better than expected, unlike in the previous two releases, although the pace of inflation still remains slow.

On the other hand, the labour market report confirmed tight conditions in March, with the unemployment rate staying the lowest level since the mid-1990s. Industrial production fell more than expected in March, but mainly due to the volatility of the series while corporates expect a sharp rise in production in April.

All said, the Japanese economy continues to face the issue of tight job market conditions and better activity not translating into underlying price rises. The recent  round of annual wage negotiations provides little support for this transmission, with wage growth likely to decelerate for the second straight month.


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