The headline Consumer Price Index figure printed at 2.3%, the highest in 11 years. More notably however, the metric comes to just 0.2% after excluding food and energy costs. This suggests the figure is being overstated by commodity prices and is likely to moderate in the second half of the year as lower global resource prices filter through the broad economy. For their part, the Bank of Japan is unlikely to raise interest rates in the near term. Japan’s economy shrank in the second quarter and is on track to post another negative GDP growth reading in the third, formally putting the world’s second-largest market in recession. Bank officials have repeatedly said that their focus is to support economic growth because higher headline prices have not produced the dreaded “second-round” effects (such as wage inflation) and are expected to moderate as the global economy slows down. Bond yields reveal the market is pricing in no change in Japanese borrowing costs until at least the fourth quarter of next year.
