More stagnant inflation for Japan in July

There will be a base effect due to last year's rise in oil prices that continued through to mid-2014. Although the BoJ is aiming at achieving a 2% price stability target, Japan CPI (excluding fresh food) likely fell below 0% yoy, its weakest point since April 2013.

"Japan's nationwide CPI (excluding fresh food) likely fell to -0.2% yoy in July (was +0.1% yoy in June). Factors such as the passing on of price increases to products as a result of costpush inflation caused by yen depreciation and the recovery in domestic demand are helping to push up inflation", says Societe Generale. 

Since April, the effects of upward pressure on wages have been getting stronger due to the improved balance of labour supply and demand. In Q4, the base effect due to the fall in oil prices will also fade out. As a result, prices will pick up on a yoy basis. However, oil prices have fallen again since July. 

Moreover, the main cause of the negative Q2 GDP growth was weak consumption. It would seem that consumers have not yet recovered completely from the deterioration of consumer sentiment after the consumption tax (CT) hike in April 2014, especially as food prices are continuously increasing. As a result, consumers have been defensive.