As a leading indicator of Japan's national inflation data, Tokyo's inflation rate in July has risen for the third consecutive month, which means that the possibility of the Bank of Japan raising interest rates next week has increased. However, some detailed data has also raised concerns among economists, who believe that the sustainability of Japan's inflation needs further observation.
On the occasion when market traders closely watch the trend of the yen, there is another good news for the yen bulls this Friday: Tokyo's inflation rate in July has risen for the third consecutive month, which means that the possibility of the Bank of Japan raising interest rates next week has increased.
The rise in electricity prices pushed up inflation in Tokyo.
The Japanese Ministry of Internal Affairs announced on Friday that the Consumer Price Index (excluding fresh food) in Tokyo in July rose 2.2% year-on-year, higher than 2.1% in June. This data is in line with general expectations and indicates that inflation in Tokyo is on the expected path of continuous heating up.
Japan's national inflation data for July will not be released until August. Usually, Tokyo's inflation data is a leading indicator of national data, so this indicator will greatly affect the Bank of Japan's policy decision at the end of this month.
The main driver of inflation in Tokyo is the rise in energy prices: Tokyo's electricity prices rose 19.7% year-on-year in July. However, the rise in Tokyo's processed food prices has slowed down slightly and the growth rate of Tokyo's hotel prices has also slowed down.
This indicates that the strong rise in core inflation index in Tokyo in July is mainly boosted by the end of the Japanese government's public utility subsidies for the month.
Some economists say:
"The acceleration of Tokyo's core inflation rate in July provides strong support for the Bank of Japan to raise interest rates at its meeting next week, as we have always predicted. The index has been boosted by the recent cut in public utility cost subsidies."
The day before, Japan's June corporate service prices jumped to the highest level in about 33 years.
These signs of rising inflation are significant for Bank of Japan officials. After implementing years of aggressive easing policies, these rising inflation signs are likely to strengthen their confidence in raising interest rates.
Detailed data implies hidden concerns.
However, not all economists feel optimistic. Yoshiki Shinke, Senior Executive Economist at Dai-Ichi Life Research Institute, said that Friday's data seems to show that businesses are having difficulty passing on higher costs to consumers due to weak consumer spending.
"Whether the Bank of Japan will raise interest rates next week or not is possible," Shinke said, "today's data is not disappointing, but it won't give them more confidence in the inflation trend. If I had to make a decision, I would wait for more data."
Some detailed data released on Friday may have caused concern for this economist.
For example, after excluding fresh food and energy prices, the rise in core inflation in Tokyo was only 1.5%, lower than 1.8% in June.
In addition, Tokyo's service price index in July slowed down from 0.9% in June to 0.5%, which may bring some caution to the discussions of the Bank of Japan's board of directors next week.
Whether the Bank of Japan raises interest rates or not will determine the trend of the yen.
The Bank of Japan will announce its monetary policy decision on July 31. It has been confirmed that the Bank of Japan will announce the details of reducing the bond purchase plan at that time, but whether the central bank will raise interest rates is still a mystery.
According to a survey earlier this week, although only about 30% of Bank of Japan observers believe that the central bank will raise interest rates at the July meeting, more than 90% of central bank observers believe that it is possible for the Japanese central bank to raise interest rates.
Bank of Japan Governor Haruhiko Kuroda has expressed many times that the central bank is closely monitoring various economic data and looking for various clues to be confident that Japan's wage increases are stimulating consumption, driving demand-driven price increases, and maintaining inflation at the target of 2%.
After the July meeting, the Bank of Japan will update its forecast for Japanese inflation and economic growth. Currently, Japan expects its benchmark price indicator to remain above the 2% target in the fiscal year ending in March next year, and then fall below 2% in the next fiscal year.
After the recent strengthening of the yen for the past two weeks, the yen paused its rise on Friday. As of press time, the US dollar against the yen was hovering around 153.76, a slight increase of 0.04% during the day. The Bank of Japan's decision next week may be a key factor in determining the future trend of the yen.
Editor/Lambor