Japan's October inflation to dip a tad lower to 1.1%

Is it finally coming closer to its target?

According to DBS, the rise in prices may come to a pause soon. Japan's October’s CPI inflation is projected to be 1.1% YoY, only slightly higher than 1.0% in the preceding month. Energy price inflation has eased as a result of the recent correction in global oil prices.

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The key economic data for October will be released tomorrow. Industrial production is expected to register a positive growth of around 2% MoM sa, mirroring the rise in PMI, exports and production forecast index during the same month.

Still, it seems that the momentum of growth has slowed compared to the first half of this year. Despite the sharp depreciation of the yen, there is so far little evidence that a weaker yen has effectively boosted Japan’s export competitiveness – measured by the market occupation rates of key export products.

Meanwhile, domestic consumer confidence has deteriorated sharply following October’s announcement of raising the consumption tax. October retail sales, released this morning, showed a decline of -1% MoM sa.

Excluding the distortion from the upcoming consumption tax hike, CPI numbers are expected to remain stable at about 1% in 1H14 before falling back in 2H14. In order to fulfill the commitment of achieving the 2% inflation target, the BOJ will likely remain under pressure to ease policy in 2014.

The latest minutes for the Oct 31 BOJ meeting showed that policymakers have become less confident about the economic outlook. Three (out of nine) board members either expressed concerns about the downside risks to economic activity, or suggested to revise the wording on inflation used in the statement.