- June’s CPI could be a relief for the Bank of Japan despite staying below the target.
- Bank of Japan will have its next monetary policy meeting at the end of the month.
- Outlook of the USDJPY depends on the outcome of the inflation data.
On Thursday, July 19 at 10:30 p.m. New York time, the Ministry of Internal Affairs and Communications of Japan will release the country’s inflation data. The market expects the Consumer Price Index (CPI) it has risen 0.8% on an annual basis after registering an interannual advance of 0.7% the previous month.
The modest acceleration in price growth would be a relief for the Bank of Japan, which has not been able to stabilize inflation around its target consistently for years. However, despite this progress, the CPI rate would remain well below the Bank of Japan’s 2.0% target. This economic situation could lead the entity to lower its inflation projections at its next monetary policy meeting this month.
After years of flexible and unconventional monetary policy, the Bank of Japan managed to increase the core CPI for February by 1.0% on an annual basis; a maximum of three years. However, as of that point the trend has been weakening, to such an extent that this indicator has fallen to 0.7% in May, which has extended the distance to the inflation target of 2.0%.
Although Japan is one of the few countries that include energy prices in its core inflation, high prices will not be enough to compensate for the weak historically recorded consumer prices. In the event that inflation only shows moderate progress, it is likely that the Central Bank at its meeting at the end of July will lower the forecasts of the inflation level from 1.3% to 1.0% in 2018, and from 1.8% to 1.5% by 2019 This situation would delay the convergence of inflation to the 2.0% target in 2020 and, therefore, could delay an eventual adjustment in Central Bank interest rates.
A bearish outlook against the Japanese Yen could boost the USD / JPY above the key level of 113 this week, repeating this level for the month of January of this year. On the other hand, a figure well above what was expected in the increase in prices could send the pair lower.
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Written by Daniel Castaño – DailyFX Research Team in Spanish