Japanese inflation numbers continue to disappoint, rendering the Bank of Japan’s 2% inflation target by 2021 less likely. July’s nominal consumer prices increased by 0.90% (prior: 0.70%) amid increasing fresh food and fuel prices, but core figures suggest a flattening of the measure, both given at +0.80% (ex. food) and +0.30% (ex. food and energy): almost unchanged since the beginning of the year (+/- 0.2 range bound).
The likelihood of the BoJ adjusting its inflation forecast downward is becoming certain.
The recent decision to allow a wider fluctuation of its 10-Year government bond yield will cause further yen appreciation, which is expected to reduce inflation. The government’s decision to reduce mobile wireless fees by 40%, a business contributing 0.90% of core CPI expansion, could subdue consumption. Following the announcement on Tuesday, KDDI (T:9433), Docomo, (T:9437), Rakuten (T:4755) and Softbank (T:9984) lost -5.22%, -4%, -3.59% and -1.63% respectively.
Currently trading at 111.39, USD/JPY is expected to bounce back, heading along 111.50 in the short-term.
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