Japanese consumer prices rose less than expected in July, data showed on Friday, sending the yen and bond yields lower and scaling back market expectations for the Bank of Japan to raise interest rates in the coming months.
The core consumer price index (CPI), which excludes fresh food costs, rose 0.2 percent in July from a year earlier, below economists' forecast for a 0.5 percent gain.
The figure was based on a new calculation method to reflect household spending trends, and factors such as the inclusion of flat-screen TVs and DVD recorder prices knocked recent price data lower by a bigger margin than the market expected. Under the new method, the index also rose 0.2 percent in June after a flat reading in May.
"I think there will be implications for monetary policy," said Takehiro Sato, an economist at Morgan Stanley. "This will be a setback for expectations for the next rate rise by the BoJ," he said. A Reuters poll of after the data showed eight out of 20 market players and analysts still expect the BoJ to raise short-term rates to 0.5 percent by the end of the year after it lifted rates to 0.25 percent from zero in July.
But five out of the 20 surveyed scaled back their expectations, with two now ruling out the possibility of another rate rise before the end of the fiscal year in March and three putting back the timing by one to two months.
The new calculation method shaved around 0.5 percentage point off year-on-year changes in data for overall CPI from January, a government official said, while economists had expected a downward revision of 0.2 to 0.3 percentage point. Under the old method, core CPI was up 0.6 percent in July after a 0.6 percent gain in June, the data showed.
The change in the calculation method, which takes place every five years, includes a rejig of the basket of products that are used to derive the index and the weighting each receives. The index now reflects prices of high-tech gadgets such as flat-screen TVs and DVD recorders to take account of changing retail trends, while prices of conveyer belt sushi and grilled meat also feature as a result of new dining trends.
The ministry added 34 items to the basket while dropping or combining 48 items, as it also shifted the base year for the price index to 2005 from 2000. The basket is now made up of 584 items. While the new figures are designed to make the data more accurate, economists said the lower-than-expected figures did little to change the view that prices are recovering from more than seven years of deflation.
Wages are starting to rise after a long slump and companies are slowly passing on soaring oil costs to consumers, both thanks to the economy's emergence from a decade of stagnation.
Encouraged by the upturn in prices and the economy, the BoJ lifted its target for the key overnight call rate to 0.25 percent on July 14 and has said it will continue to raise rates gradually. Still, Japanese bond prices rose sharply after the CPI data reinforced expectations for rates to rise only slowly.
The yield on the benchmark 10-year cash Japanese government bond (JGB) tumbled to a five-month low. The yen fell to a one-month trough against the dollar, trading at around 117.15 yen against the US currency by late afternoon from around 116.45 before the data.
The data also showed CPI excluding food and energy costs fell 0.3 percent in July from a year earlier under the new calculations, possibly providing fresh ammunition for those including some government officials opposed to further monetary tightening.
Comments
Comments are closed.