The Japanese Producer Price Index (PPI) fell significantly in July, attaining a lower level of 8.6% YoY in July against the previous record of 9.4% in June. The decline in the Japanese PPI marks a significant improvement in controlling the rising inflation within the manufacturing sector.
The Japanese PPI is an important economic data measuring the prices of goods that various companies offer to wholesale distributors. The PPI influences the CPI directly. This is because an increase in the PPI will result in an attendant rise in the CPI and vice-versa.
Oil and coal prices, the primary cause of global inflation, fell significantly to 14.7% against the previous record of 21.8% in June.
Nonetheless, according to the data released by the BoJ, only a few areas, such as food and machinery, had recorded an accelerated price growth contrary to the expectations in the just concluded month.
The prices of beverages and food rose 5.5% in July against the previous record of 4.6% in June.
Other products, usually affected by the global commodity prices and chemicals, had also witnessed a moderate price increase.
The yen-based import price index rose to 48.0%, much higher than the old record of 47.6% in June. This signalled that the Yen had played some part in fueling the rising inflation within the country.
According to the Trading Economics global macro models and expectations, the Japanese Producer Prices Index is expected to fall further to 3.40% by the end of this quarter. In the long-term, the Japan Producer Prices Index is projected to decline around 2.50% in 2023 and 1.80% in 2024.
The process of quantitative easing by the BoJ to support the economy seemed to have yielded fruit for a short while in controlling its inflation rate. Hence, the BoJ has further reinstated its position that it is not in any rush to remove its stimulus. This is based on its convictions that external factors and hardly sustainable largely drove the current inflation.
What is the Japanese Producer Price Index (PPI) YoY?
The Japanese Producer Price Index (PPI) YoY records changes in the prices of goods and services sold by manufacturers to the distributors in the wholesale market year over year.
Often the Japanese PPI is influenced by several factors such as the cost of raw materials for production, labour costs, etc.
The Japanese PPI affects the Consumer Price Index and could be used to measure the cause of inflation in the absence of the CPI.
How does the Japanese Producer Price Index (PPI) affect the Japanese Yen?
The Japanese PPI is solid economic data that significantly influences the Japanese Yen in the forex market today. A reduction in the Japanese PPI is expected to positively impact the Yen against its cross in the market. Thus, with the recent fall in the Japanese PPI witnessed today, we can expect more strength from the Yen for the rest of the month.
On the contrary, an increase in the PPI is a clear testimony of increasing inflation and, therefore, would be expected to weaken the currency.
What is the relationship between the Japanese Producer Price Index and the Consumer Price Index?
The Japanese PPI and its CPI are two closely related economic data. Thus, both simultaneously serve as the measure of Japanese inflation.
Further, the Japanese PPI exerts a direct influence on its CPI. Thus, an increase in the PPI will lead immediately to an increase in the CPI and vice-versa. The little additions seen on the PPI compared to the CPI are based on the chain of distributors who hike the PPI before it gets to the consumers.
Does the Japanese PPI affect the Japanese Stocks?
More often, the stock markets seem more favoured by a rising inflation rate than its decline. Hence, a reduction in the Japanese PPI will amount to a fall in the prices of some Japanese stocks. For instance, the major Japanese Index JP225 has reacted negatively to this data, pushing the price lower during the Asian session today.
