...this is just waiting to stoke the reversal of the yen carry...

...this is just waiting to stoke the reversal of the yen carry trade.
Japan’s inflation picks up, pressures Bank of Japan

Tom Richardson

Japan’s inflation accelerated after the government increased renewable energy-related levies, a result that backs the case for the central bank to consider raising interest rates in coming months.
Consumer prices excluding fresh food rose 2.5 per cent in May from a year ago, quickening from 2.2 per cent in April, the ministry of internal affairs said Friday. The reading came in a tad below economists’ consensus while staying at or above the Bank of Japan’s 2 per cent target for a 26th month.

The nationwide results were roughly in line with May figures for Tokyo released three weeks ago.
The main gauge re-accelerated after two months of deceleration, providing a rationale for the central bank to consider raising interest rates as early as next month, when the BOJ has said it will provide details about its plans to reduce bond buying. Asked last week if authorities might be able to raise rates at the same meeting, Governor Kazuo Ueda replied “of course,” as long as data warrant such a move.

Ueda further highlighted the possibility of an early hike when he said in parliament Tuesday that there’s a good chance the policy rate will be raised next month, depending on economic and financial conditions.

At the same time, a deeper measure of inflation that strips out fresh food and energy prices rose 2.1 per cent in May, marking a ninth consecutive month of cooling, and growth in service prices, which the BOJ has highlighted as a key factor in its policy deliberations, edged lower to 1.6 per cent after slowing sharply to 1.7 per cent in April.

That deceleration may hint at a growing reluctance by businesses to raise prices further, as higher costs have increasingly damped consumer appetites.

Factors driving faster inflation were energy costs, led by a jump in electricity prices.

Among the components weighing on the index was processed food, for which price growth slowed to 3.2 per cent partly due to base effects. The number of food items that saw price increases in May was less than half the figure in the same month last year, according to the latest survey by Teikoku Databank.

Going forward, there are both upside and downside factors affecting prices. One of the main factors pushing prices higher is the weak yen. Japan’s currency has traded within a few yen of its 34-year low to the dollar for much of the past month.

The yen was trading around 158.85 to the dollar Friday morning in Tokyo, prompting a volley of verbal intervention. Top currency official Masato Kanda said there’s no change in his stance to take appropriate measures if there are excessive currency moves.