Headline inflation rose 0.7% y/y in May from 0.6% y/y in April while core inflation (excluding prices of fresh food) continued to stay flat at 0.7% y/y in May. The lacklustre price pressure in the economy suggests that the BoJ’s stimulus is expected to stay longer. However, we remain optimistic of Japan’s price pressure picking up albeit at a gradual pace in view of rising crude oil prices, a moderate gain in wages on the back of a tight labour market and a gradual easing of the output gap. Thus, we reiterate our 2018 and 2019 inflation projections at 1.0% and 1.5% respectively.

• Headline inflation rose 0.7% y/y in May from 0.6% y/y in April while core inflation (excluding prices of fresh food) continued to stay flat at 0.7% y/y in May. The lacklustre price pressure in the economy suggests the BoJ’s stimulus is expected to stay longer.

• The cost for food and transport rose at a modest pace in May, up 0.8% y/y and 1.3% y/y compared to 0.7% y/y and 1.1% y/y, respectively in April. We believe the relatively stronger yen, due to investors seeking safe haven assets and the sluggish wage growth, has kept price pressure benign in the economy.

• However, we remain optimistic of Japan’s price pressure picking up albeit at a gradual pace in view of rising crude oil prices, a moderate gain in wages on the back of a tight labour market and a gradual easing of the output gap. Thus, we reiterate our 2018 and 2019 inflation projections at 1.0% and 1.5% respectively.

Source: AmInvest Research - 25 Jun 2018