Japan – April CPI

CPI rose in April, with the BOJ's preferred measure rising above 2% YoY for the first time in Governor Kuroda's tenure at the BOJ. The leads now suggest a peaking, which if right, would likely be positive for domestic economic momentum.

Japanese headline CPI rose in April to the highest rate since 2008, with the measure ex-food strengthening from 0.8% YoY to 2.1%. A lot of this was normalisation, on the grandfathering of last April's government-directed cut in mobile phone charges. The impact of that change falling out of the calculation is even clearer in CPI excluding both fresh food and energy, which accelerated last month from -0.7% YoY to +0.8%.

Now that this normalisation has occurred, it doesn't look yet like inflation will accelerate much further, with oil prices, services inflation and import prices all pointing to a peaking of inflation momentum. If that proves right, it would likely be a positive development for domestic activity, as it would lessen the cost of living strain that has been weighing on household sentiment. Given there's also room for services spending to accelerate as the economy continues to open-up following the Covid-19 restrictions, Japan may be setting up for a decent bounce in domestic economic momentum.