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Tokyo CPI rose again in January, and on a headline basis is now above 4%. Leading indicators continue to suggest the peak should be close, with this week's services PPI for December falling.
With US rates peaking and Asia finally opening up after covid, Japan's economy looks better placed for recovery. If the BOJ tightens now, it risks a policy mistake. Otherwise, the indicators to be watching are the shunto, and recovery of the hospitality industry as Asian travel finally normalises.
Inflation trends aren't changing much. Current inflation through December was high, but leading indicators point to a clear peak. Regardless, policy uncertainty will remain high at lest until the PM picks a new governor for the central bank, an annoucement that is likely in the next few weeks.
Import price inflation eased in December, suggesting CPI inflation falls below 2% YoY in 1H23. On this basis, the BOJ shouldn't be tightening. But having opened the door to change in December, the bank faces an enormous task if it wants to convince the market that rates aren't moving further.
The EW survey of corporates and households continues to suggest modest recovery. It can be hoped that household sentiment improves from here as inflation comes down. That will be helped by the stronger JPY, though data released yesterday confirm very large JGB purchasing by the BOJ in December.
There's volatility from month-to-month, but the BOJ's measures show that broadly, the acceleration in consumption growth seen since late 2021 is holding. That's even though the BOJ's consumer confidence survey shows a high level of pessimism, with particular dissatisfaction about prices.