Too early to say inflationary trend has turned in Japan – Nomura

Nomura Global Markets Research team is of the opinion that the underlying trend in price pressures has not changed and the Yen strength seen earlier this year is likely to weigh on inflation in the near-term.

Key quote

One surprise, in our view, was that the Tokyo area core core CPI turned positive, at +0.1% y-y, after declining 0.1% in September, and was significantly stronger than the consensus forecast of -0.1%.

Estimates for the Bank of Japan's Tokyo core core CPI excluding fresh food and energy put inflation based on this measure at +0.2% in October, up from +0.1% in September.

Looking at individual categories of goods, there appears to have been a significant one-time boost from such items as golf clubs (which made a +0.04ppt contribution to y-y core CPI inflation compared with the previous month) and fire and earthquake insurance premiums (+0.03ppt). In addition, the Tokyo area core core CPI has been falling rapidly in the second half of this year, against the US dollar recently, we expect the impact of the earlier return to yen strengthening to weigh on inflation in the near term.