Deflation continues in Japan

Japan headline inflation data released on Friday showed that deflation continues in Japan with little evidence of price pressures. Data released by the Statistics Bureau showed Japan's national consumer price index declined at an annualized 0.5 percent in September, following an identical drop the previous month and in line with expectations.

The Bank of Japan’s (BoJ) forecast measure of core CPI (excluding fresh foods) was also unchanged at -0.5 percent y/y, both firmly in negative territory and at their lowest rates since the launch of QQE in 2013. Core-core inflation, which excludes both food and energy, fell more than expected, by 0.2ppt to zero, a three-year low, following a 0.2 percent increase in August, official data showed.

While services inflation edged marginally higher (to 0.3 percent y/y), non-energy industrial goods inflation was down a full percentage point to a more than three-year low of -0.4 percent y/y, no doubt related to some extent to the deflationary impact of the stronger yen.

The one-month ahead, Tokyo CPI figures today showed the headline rate rising 0.6ppt to +0.1 percent y/y. And while the ‘core core’ measure of CPI was up 0.2ppt in October, at +0.1 percent y/y it continues to highlight very subdued underlying price pressures.

"Looking ahead, we continue to expect headline CPI to edge higher over coming months as energy prices provide a smaller drag," said Daiwa Capital Markets in a report.