Tokyo CPI Surges in November, Bolstering BOJ's Next Rate Hike

By TrendForce

2024-11-29

The Tokyo CPI, a key leading indicator of Japan's inflation, surged significantly in November, according to data released by Japan's Ministry of Internal Affairs and Communications on November 29.

Tokyo's CPI rose 2.6% year-on-year in November, marking a sharp increase of 0.8 percentage points from the previous month. This rise was primarily attributed to the removal of energy subsidies implemented by former Prime Minister Fumio Kishida in November, which drove energy prices up by 7.4% year-on-year, an increase of 4.9 percentage points from the prior period.

The core CPI, which excluding fresh food, grew by 2.2% year-on-year, up 0.4 percentage points from the previous month. Meanwhile, the core-core CPI, which further excludes energy, increased by 1.9% year-on-year, up 0.1 percentage points from the previous month, marking its second consecutive month of growth.

Services prices, another metric closely watched by the Bank of Japan, rose 0.9% year-on-year, up 0.1 percentage points from the prior month and also marking a second consecutive month of acceleration. This reflects rising wage growth expectations driving companies to increase service prices.

Despite nominal base wages in Japan reaching a 31-year high, real total wages have seen two consecutive months of negative growth since July, indicating that inflation continues to erode consumers' purchasing power.

As a predictor of nationwide inflation, Tokyo's core CPI remains above the Bank of Japan’s 2% target, signaling persistent inflationary pressures. BOJ Governor Kazuo Ueda has reiterated that the central bank will continue to implement rate hikes if economic and inflation trends align with its projections.

The rise in inflation has also significantly heightened expectations for a December rate hike by the BOJ. According to Bloomberg, swap market data indicates a roughly 60% probability of a 0.25% hike in December, double the likelihood recorded before the data release.

Fed's Preferred Inflation Gauge Rises, but December Rate Cut Expectations Unchanged

The Fed’s closely watched inflation gauge has risen again, according to data released by the U.S. Bureau of Economic Analysis on November 27. The Personal Consumption Expenditures (PCE) Price Index increased by 2.3% year-over-year in October, up 0.2 percentage points from the previous month, while the month-over-month increase held steady at 0.2%. The core PCE price index increased by 2.8% year-over-year, up 0.1 percentage points from the previous month, marking the largest gain since April of this year. On a monthly basis, it rose by 0.3%, unchanged from the previous month. Breaking down the components, goods prices continued to decline, with a 0.1% month-over-month drop, consistent with the previous month. However, services prices saw strong growth, rising by 0.4% month-over-month, an acceleration of 0.1 percentage points, marking the second consecutive month of faster growth. This strength in services prices remains a significant barrier to broader inflation moderation. (Source: BEA, TrendForce) Minutes from the Federal Reserve’s November meeting, published on November 26, revealed that most officials are confident inflation will eventually return to the 2% target but stressed that the process could take longer than expected. While the latest data supports the Fed’s outlook, it is unlikely to change market expectations for a 25-basis-point rate cut at the December meeting. Federal Reserve Chair Jerome Powell previously highlighted in his November press conference that inflation could temporarily rebound toward year-end due to seasonal factors, including a low base effect from 2023 and holiday spending in the fourth quarter. Thus, the recent rise in inflation appears to align with the Fed’s expectations and does not deviate from its policy considerations. Read more at Datatrack

2024-12-02

Key Focus This Week: U.S. ISM PMI & Employment Situation

Last week, as the "Trump trade" momentum faded, U.S. Treasury yields and the dollar index ended their eight-week streak of gains. The return of capital flows bolstered U.S. equities, pushing the S&P 500 to a new record high, closing at 6,032.39 points. In the bond market, the 10-year U.S. Treasury yield fell sharply by 22 basis points to around 4.18%, while the dollar index retreated to approximately 105.7, reflecting the weakening of Treasury yields. Key Economic Data Review for Last Week   FOMC Meeting Minutes: The Federal Reserve's November meeting minutes revealed that officials remain confident in inflation returning to the 2% target and believe the downside risks to the labor market have diminished. Some officials indicated that, assuming the economy and inflation align with expectations and given the uncertainty around the neutral rate, a gradual approach to rate cuts would be appropriate.   U.S. PCE: The Personal Consumption Expenditures (PCE) price index rose by 2.3% year-on-year (previous: 2.1%) and 0.2% month-on-month (unchanged from the prior month). Core PCE increased by 2.8% year-on-year (previous: 2.7%) and 0.3% month-on-month (unchanged). This uptick largely reflected persistent service price stickiness (up 0.4% month-on-month) and the impact of a low base effect. The results were broadly in line with market expectations, as the Fed had previously forecasted a year-end inflation rebound, followed by a decline in early 2024. Read more at Datatrack   China PMI: China’s manufacturing PMI edged up slightly to 50.3 in November (previous: 50.2). Sub-indices showed production at 52.4 (previous: 52.0), new orders at 50.8 (previous: 50.2), supplier delivery time at 50.2 (previous: 49.6), and new export orders at 48.1 (previous: 47.3). These gains reflected the impact of the "trade-in" policy, Singles' Day promotions, and export acceleration driven by the Trump election effect. Non-manufacturing PMI dipped slightly to 50.0 (previous: 50.2). Key sub-indices such as new orders, input prices, and employment also weakened. By sector, the service activity index remained in expansion at 50.1 (unchanged), while the construction activity index declined further into contraction territory at 49.7 (previous: 50.4), reflecting the seasonal slowdown in the construction sector during winter. Read more at Datatrack   Key Economic Data for This Week   U.S. ISM PMI (12/2) & NMI (12/4) : With the Boeing strike resolved and election uncertainties dissipating, coupled with the tailwinds from Q4’s consumer-driven holiday season, the manufacturing PMI for November is expected to improve slightly to 47.7 (previous: 46.5). Meanwhile, the services PMI is anticipated to remain steady at 55.5 (previous: 56.0), supported by robust consumer activity during the holiday season. Read more at Datatrack   U.S. Employment Data (12/6): October’s nonfarm payrolls were unexpectedly weak due to short-term factors such as hurricanes and the Boeing strike. As these effects subside, nonfarm payroll growth is expected to recover, with November’s figure forecasted at 202,000 (previous: 12,000). The unemployment rate is projected to rise slightly to 4.2% (previous: 4.1%). Read more at Datatrack

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