Japan’s national inflation data for February is due later today, with the release expected to mirror the softer tone seen in the Tokyo CPI figures earlier in the month. The Tokyo data showed underlying price pressures moderating, with core inflation slipping back below the Bank of Japan’s 2% target. This has reinforced the near-term case for maintaining current policy settings, even as the central bank continues to signal a tightening bias over the medium term.
The moderation in inflation was largely driven by renewed government subsidies aimed at reducing electricity and heating costs, which have temporarily dampened energy prices. In addition, price pressures in processed food categories have shown signs of easing after a prolonged period of strength. These factors are expected to feed through into the national CPI print, contributing to a softer headline and core reading for February.
However, the decline in inflation is widely viewed as temporary. Energy-related disinflation is expected to reverse in the March data, particularly as subsidy effects fade and underlying fuel costs reassert themselves. This points to a likely reacceleration in headline inflation in the near term, keeping the broader inflation trajectory intact.
For the Bank of Japan, the key focus remains on whether underlying inflation, supported by wage growth and domestic demand, continues to trend toward its 2% target in a sustainable manner. While the February data may justify a pause in policy adjustments, it is unlikely to materially alter the central bank’s gradual normalisation path.
From a currency perspective, the yen’s reaction will depend less on the headline softness and more on signals around underlying inflation momentum. A weaker-than-expected print could see the yen soften modestly as markets push back expectations for further tightening. However, any signs that underlying inflation remains resilient—particularly once energy effects are stripped out—could limit downside in the currency and keep expectations of future policy normalisation intact.
This snapshot from the investingLive economic data calendar.
The times in the left-most column are GMT.
The numbers in the right-most column are the ‘prior’ (previous month/quarter as the case may be) result. The number in the column next to that, where there is a number, is the consensus median expected.
This article was written by Eamonn Sheridan at investinglive.com.