Decrease in Japan’s headline and core CPI expected this July

Unsurprising July macro data is also anticipated.

Japan’s inflation numbers in July are expected to continue easing at a gradual pace, with headline CPI expected at 3.4% YoY in July and core CPI estimated at 3.3%, respectively.

According to a research note from DBS, this is compared to the peak of 3.7% and 3.4% in May. Meanwhile, the passthrough effects of sales tax hike on consumer prices should have diminished.

The report noted that agricultural goods prices, however, surged recently as a result of the typhoon weather.

Here’s more from DBS:

A full set of macro data for July will be released this Friday. No major surprises are expected.

Industrial production should register a modest rise of about 1% MoM sa, mirroring the mild rebound in export and PMI data.

Retail sales are projected to grow slightly by 0.4% MoM sa, following the recent uptick in consumer confidence index.

On the surface, July data would show that the Japanese economy is recovering from the slump caused by the sales tax hike.

Taking into account a very low base in 2Q, positive growth in 3Q should be interpreted as a technical rebound.

We suspect that the underlying pace of recovery will remain slow in 3Q-4Q. Consumption growth should remain subdued because of sluggish wages growth and declining real incomes.

Meanwhile, optimism about the exports outlook is ebbing, given the recent disappointing data from China and Europe.

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