sopranospinballmachine| Japan's inflation recedes. Which two data may be boosted in the future?

Huitong Financial APP--While the recent depreciation of the yen has exacerbated concerns that cost-driven inflationary pressures may persist, Japan's inflation has cooled for the second consecutive month, but remains above the Bank of Japan's target. Japan's Interior Ministry said on Friday that consumer prices excluding fresh food rose 2.5 percent year-on-year in Aprilsopranospinballmachine.2%, which is in line with analyst estimates. The indicator remained at or above the Bank of Japan's 2% target for the 25th consecutive month.

The biggest drag on the index was the slowing increase in processed food prices (slowing to 3.5%), partly due to the base effect of the increase in processed food prices a year ago, which suggests companies are more willing to pass on rising costs to consumers. The increase in accommodation costs was also small, dragging down the overall indicator.

The deeper inflation indicator, which excludes fresh food and energy prices, fell to 2.4%, also in line with market consensus.

Chart: Japan's key inflation indicator remains above central bank target

These results alone are unlikely to deflect the Bank of Japan from seeking opportunities to further scale back its easing policy settings. Bank of Japan observers are increasingly pointing to the risk of early interest rates by the Bank of Japan when the yen remains near 34-year lows, although the Japanese government has twice been suspected of intervening in the market to support the yen.

The Bank of Japan emphasized service prices as a key factor in its policy review, rising 1.7% year-on-year, slowing from 2.1% the previous month. Economists are paying more attention to this month's data because April marks the start of the fiscal year, at a time when many companies are considering implementing price changes. That trend may shift in the coming months when many companies begin implementing salary increases. Japan's largest union umbrella organization won a salary increase of more than 5% from major companies, the largest increase in more than three decades. The Bank of Japan hopes these wage increases will stimulate spending and prices.

Kohei Okazaki, senior economist at Nomura Securities, said: "sopranospinballmachineI believe that from now on, salary increases will steadily put pressure on both demand and supply. Our main scenario is that this will happen to some extent."

Tokyo's inflation is the main measure of national data. Inflation in Tokyo plunged unexpectedly in April after local governments began distributing education subsidies. Analysts, including the Nishio Basic Research Institute (NLI), estimate that the measures will have much less impact on national indicators, cutting price increases by about 0.1% or less.

Utility subsidies were deducted 0.48% from the overall CPI indicator. The government will phase out those spending starting in May, which could push the country's key inflation indicator to 3% over the summer.

Bloomberg Economics said: "The Bank of Japan seems to believe that a benign wage-price cycle will boost future inflation. An expected rise in utility costs will also boost inflation data in the coming months, providing good prospects for the Bank of Japan to raise interest rates."