BoJ Governor dismisses need for tighter policy

Chris Scicluna
Emily Nicol

Japanese PPI inflation remains near-40-year high; but Kuroda dismisses need for tighter policy
Today’s Japanese producer price inflation numbers for January came in a touch firmer than had been expected, with prices rising 0.6%M/M, driven by a near-4%M/M increase in prices of petroleum and coal products and a 2½%M/M increase in prices of nonferrous metals. Nevertheless, this still left the annual rate of inflation moderating very slightly, by 0.1ppt to 8.6%Y/Y, still within shouting distance of November’s near-40-year high of 9.2%Y/Y but perhaps suggesting that pipeline price pressures might possibly have passed their peak. However, despite an easing in the annual increase of raw materials (down 3.4ppts to 56.6%Y/Y), there were some signs that firms were starting to pass on higher input cost burdens to consumers. In particular, producer prices of final consumer goods rose slightly, to leave the annual rate up 0.3ppt to 4.4%Y/Y the third-strongest reading since the 1980s.

Of course, Japanese goods prices at the consumer level are inflating at nowhere near the same rate as PPI (non-energy industrial goods CPI inflation was still down by more than ½%Y/Y in December). And while the emergence of the Omicron variant raises uncertainties about the immediate outlook for demand and inflation, a significant boost to consumer prices seems unlikely over the near term even as last year’s extremely sharp drop in mobile phone charges falls out of the calculation from April on. Indeed, while BoJ Governor Kuroda today acknowledged in a newspaper interview that corporate goods prices were being boosted by higher energy, he also reminded that the entrenched deflationary mindset would make it extremely unlikely that consumer prices will see significant upwards pressure. And so, given the current inflation outlook in Japan – with headline inflation at just 0.5%Y/Y and expected to remain firmly below 2% in April – and with the economic recovery also softer than in the US and Europe, Kuroda also reiterated that he saw no need to change the BoJ’s monetary stance for the time being.

UK surveys flag ongoing tightness in labour and housing markets
A pair of surveys out overnight gave a snapshot of current conditions in the UK labour and housing markets. Both will be noted by the BoE as lending support to further monetary tightening amid an ongoing shortfall of supply relative to demand. Certainly, the January KPMG/REC Report on Jobs – which is based on a survey of recruitment and employment consultancies – suggested that the labour market remains very tight against the backdrop of reduced labour force participation related not least to increased long-term sickness, elevated levels of early retirement and the exodus of European workers post-Brexit. The survey reported a further marked increase in hiring activity, with demand for temps accelerating again and demand for permanent staff slowing only slightly from a historically high level. And with a further steep decline in the availability of candidates, the tight balance between labour supply and demand reportedly maintained significant upwards pressure on pay, which over recent months has remained above the BoE’s comfort zone. The survey measure of starting salaries signalled the third-fastest pace on the series, and while it eased to a seven-month low, temp pay growth was also highly elevated by historical standards. The number of job vacancies also continued to rise at a historically high rate, albeit slipping back to a nine-month low, to suggest that tightness in the labour market is set to persist for some time to come.

Meanwhile, the January RICS residential market survey of chartered surveyors suggested that the housing market remained very tight at the start of the year maintaining pressure on home prices that have been rising at a double-digit annual rate. New buyer demand reportedly picked up to an eight-month high. While this was not particularly high by historical standards (with the survey’s net balance up to +16%), new sales instructions reportedly continued to decline although the relevant net balance was the least negative in nine months. Sales volumes were broadly steady, having been on a weakening trend since the phase-out of the government’s stamp duty holiday. And transactions were expected to rise over the coming three (+22%) and twelve months (+24%). Most notably, however, the survey flagged ongoing house price pressures generated by the tight balance between supply and demand, with a net balance of +74% of surveyors – well within the lofty range of the past nine months – reporting rising prices last month, with all regions, not least South East England, seeing strong gains. And despite the prospect of higher interest rates, the majority of those surveyed expect to see ongoing house price growth over the coming three (+69%) and twelve months (+74%).

BoF business survey set to flag hit to consumer-facing services; ECB speakers to be watched
On a relatively quiet day for euro area releases, the Bank of France should also publish its business survey results for January. While manufacturing production probably held up at the start of the year, the survey is likely to point to a hit to activity in consumer-facing sectors due to the pandemic suggestive of a decline in GDP as a whole. But likely to be more headline-grabbing will be commentary by several ECB Executive Board members, with the typically dovish ECB Chief Economist Lane due to participate in a panel discussion on supply-chain disruptions, while Vice President de Guindos will be speaking about Europe’s post-Covid economic recovery.

US CPI report to show headline inflation rising to a 40-year high
In the US, today will bring the data highlight of the week with January’s CPI report. Having eased slightly in December, energy prices are expected to have picked up in January, while food prices appear to have maintained a firm upwards trajectory. And while Omicron could limit price pressures in some pandemic-sensitive areas in January (e.g. airfares, apparel), strong demand and higher costs from supply disruptions are likely to persist. So, Daiwa America’s Mike Moran expects consumer prices to have risen a further 0.5%M/M, only marginally softer than the average over the past year, to leave the annual rate of inflation up a further 0.3ppt to 7.3%Y/Y, the highest for forty years. 

Categories : 

Back to research list


This research report is produced by Daiwa Securities Co. Ltd., and/or its affiliates and is distributed by Daiwa Capital Markets Europe Limited in the European Union, Iceland, Liechtenstein, Norway and Switzerland. Daiwa Capital Markets Europe Limited is authorised and regulated by The Financial Conduct Authority and is a member of the London Stock Exchange and Eurex Exchange. Daiwa Capital Markets Europe Limited and its affiliates may, from time to time, to the extent permitted by law, participate or invest in other financing transactions with the issuers of the securities referred to herein (the “Securities”), perform services for or solicit business from such issuers, and/or have a position or effect transactions in the Securities or options thereof and/or may have acted as an underwriter during the past twelve months for the issuer of such securities. In addition, employees of Daiwa Capital Markets Europe Limited and its affiliates may have positions and effect transactions in such securities or options and may serve as Directors of such issuers. Daiwa Capital Markets Europe Limited may, to the extent permitted by applicable UK law and other applicable law or regulation, effect transactions in the Securities before this material is published to recipients.

This publication is intended for investors who are not Retail Clients in the United Kingdom within the meaning of the Rules of the FCA and should not therefore be distributed to such Retail Clients in the United Kingdom. Should you enter into investment business with Daiwa Capital Markets Europe’s affiliates outside the United Kingdom, we are obliged to advise that the protection afforded by the United Kingdom regulatory system may not apply; in particular, the benefits of the Financial Services Compensation Scheme may not be available.

Daiwa Capital Markets Europe Limited has in place organisational arrangements for the prevention and avoidance of conflicts of interest. Our conflict management policy is available at  /about-us/corporate-governance-regulatory. Regulatory disclosures of investment banking relationships are available at