Japan inflation seen persisting, export slowdown to push up trade deficit

Japan's core consumer inflation likely held steady in March, a Reuters poll of 19 economists showed, highlighting persistent price strains and keeping the central bank under pressure to shift away from stimulus.

Speculation is rife that the Bank of Japan (BOJ) may tweak its bond yield control, or ditch it altogether, sooner or later under new Bank of Japan (BOJ) Governor Kazuo Ueda, who took the helm at the bank earlier this month.

Ueda has repeated that it was appropriate to maintain the current monetary easing for the time being, damping down prospects of a shift at his debut policy review on April 27-28, in which the central bank reviews its inflation and growth forecasts.

Data from the internal affairs ministry is expected to show the core consumer price index (CPI), excluding volatile fresh food but including oil products, rose 3.1% in March from a year earlier.

That pace would be unchanged from February, when consumer inflation fell sharply from 41 year-high of 4.2% logged in January. In February a government subsidy on gas and electricity bills curbed living costs.

"From daily disposable goods to household appliances, the wave of price hikes is spreading to non-food items as well," Shinkin Central Bank economists wrote in a note. "The movement remains intact for companies to pass on costs of items other than energy, upward price pressures remain strong."

The central bank predicts the CPI will fall below 2% around the middle of this fiscal year as base effects fade away.

The CPI data is due out at 08.30 am Japan time on April 21 (2330 GMT April 20), while the trade data is released at 08.50 am Japan time on April 20.

Data by the Ministry of Finance (MOF) is likely to show Japan's exports will slow to a crawl year-on-year in March as global monetary tightening has taken its toll on overseas demand, denting hopes for an export-led recovery in Japan.

On the other hand, imports probably continued to outpace exports, driven by a weak yen, resulting in a larger trade deficit than February.

Exports probably grew 2.6% year-on-year in March, slowing sharply from 6.5% in the previous month, while imports likely rose 11.4% in March, accelerating from 8.3% previously. The trade deficit came to US$9.73 billion (about RM43 billion) in March, versus a shortfall of ¥897 billion in February.

"Exports will likely continue their down trend reflecting the global economy's slowdown," said Kenta Maruyama, an economist at Mitsubishi UFJ Research and Consulting. "As global slowdown persists, exports will remain weak going forward."