Japan CPI Preview: Forecasts from five major banks, inflation likely to moderate

CPI inflation likely subsided to 2.5% YoY as oil prices dropped even amid the Middle East conflict. Core inflation excluding food also likely fell to 2.4% YoY. We expect core-core inflation excluding food and energy to have declined to 3.7% YoY, still a significantly high level. A moderation in Tokyo CPI inflation in December supports our view. CPI inflation in Japan is being supported by a strong job market but we expect negative wage growth rate to contain any further improvement.

Japan's CPI inflation is expected to decelerate to 2.7% YoY in December with falling utility prices and other energy prices weighing on the overall number. Service sector prices, however, will likely rise on the back of high demand in travel related items such as accommodations and eating out.

We expect core inflation ex. fresh food at 2.3% YoY and core-core ex. fresh food and energy at 3.7%, or +0.2% MoM for both.

We forecast a fall in nationwide core CPI from +2.5% YoY in November to +2.3% YoY in December. The impact of high growth in 2022 will be evident, putting downward pressure on food and energy. On the other hand, we expect nationwide core CPI growth to jump in February 2024, as the YoY downward contribution from measures to reduce the burden of electricity and gas bills will disappear. On a YoY basis, we forecast a rise in nationwide core CPI of nearly 3%.

We expect nationwide core CPI (excluding only fresh food) to increase 2.3% YoY in December, down from a 2.5% YoY advance in November. The negative contribution of energy likely increased, reflecting the base effect. Meanwhile, CPI excluding fresh food and energy likely increased 3.8% YoY in December as in November. Core CPI inflation excluding special factors (i.e., energy, mobile phone charges and hotel charges) probably increased 2.83% YoY in December, effectively unchanged from a 2.82% YoY rise in November.