Consumer and core inflation eased for the second month in April. The slower gains in inflation suggest a possible delay by the Bank of Japan (BoJ) to hit the 2% target. However, we feel that the current inflation trend could reverse in view of rising crude oil prices, a moderate gain in wages and gradual easing of the output gap.

We reiterate our projection for the headline inflation to average around 1.0% in 2018 and improve further to 1.5% in 2019. Hence, we expect the BoJ to remain neutral in the upcoming monetary policy meeting.

• Consumer and core inflation eased for the second month in April. Headline inflation rose 0.6% y/y in April from 1.1% y/y in March while core inflation (excluding prices of fresh food) eased to 0.7% y/y in April versus 0.9% y/y in March.

• The slower gains in inflation suggest a possible delay by the Bank of Japan (BoJ) to hit the 2% target. However, we feel that the current inflation trend could reverse in view of rising crude oil prices, a moderate gain in wages and gradual easing of the output gap.

• We reiterate our projection for the headline inflation to average around 1.0% in 2018 and improve further to 1.5% in 2019. Hence, we expect the BoJ to remain neutral in the upcoming monetary policy meeting. Nonetheless, we will be watching closely on the BoJ’s tone and if there is a change in its current macro projection.

Source: AmInvest Research - 21 May 2018