Japanese CPI Rises on Energy Price Growth, All Eyes on the BOJ

Japanese prices rose to a decade high in February. The rise was almost entirely accounted for by rising energy costs, as a revised metric excluding energy actually showed a decline of -0.1%. This comes at a time of declining spending and employment levels, two separate reports revealed today. Should next week's Industrial Production and Tankan Manufacturing index validate expectations of a decline, the Japanese economy can be said to have sunk into a mild recession. This puts the BOJ in a difficult position, having to lower rates to stimulate growth all the while inflation accelerates higher. Acting Governor Masaaki Shirakawa noted last week the bank was prepared to be "flexible", suggesting the BOJ is leaning towards a dovish posture. Traders are currently pricing in a 53% chance that borrowing costs will be reduced by December.

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