Coming up at 2330 GMT is Japanese CPI (national) for May

CPI y/y

  • expected 0.6%, prior was 0.6%

CPI excluding Fresh Food y/y

  • expected 0.7%, prior was 0.7%

CPI excluding Food, Energy y/y

  • expected 0.3%, prior was 0.4%
  • This measure is closest to the US 'core' measure of inflation

Preview (and background) via Société Générale

  • Inflation has been decelerating since the beginning of the year, even though the unemployment rate has continued to fall. The decoupling of price growth and the unemployment rate has become more pronounced in the past few months. This phenomenon could be explained by the different relationship between the two at the different stages of an economic recovery.
  • In the initial state of an economic recovery, businesses continue to restructure, preventing the unemployment rate from declining. However, the pick-up in demand pushes businesses to reverse the price cuts during the previous economic downturn, pushing up inflation. This creates a situation where price growth accelerates faster than the decline in the unemployment rate.
  • But, as prices rise above a certain level, the pace of inflation will start to slow down. Meanwhile, business starts to sell off inventories of old products and services by suppressing prices, as new products and services are created to meet the pick-up in demand. This further slows the pace of inflation. On the other hand, continued economic growth finally brings lower unemployment rate and rising wage growth. This likely reflects the current state of Japan's economy, where we are observing lacklustre inflation while the unemployment rate continues to decline steadily.
  • That said, the persistently stronger wage growth relative to inflation should help support household demand and in turn help maintain economic growth momentum. Businesses will then find it easier to raise prices further. In such a scenario, both inflation and wage growth should finally start to pick up simultaneously. We expect this positive cycle to strengthen further in the coming month, and inflation to pick up again and reach around 1% growth by early next year.

Interesting thoughts, comments welcome!