Inflation Still Likely To Accelerate Despite Lower Oil Prices

Despite the sharp decline in global oil prices, Mizuho expects Japan's inflation to continue rising due to persistent core goods pricing and lagged energy adjustment mechanisms. This environment supports the Bank of Japan's path toward continued policy rate normalization.

Key Takeaways

• 1.Japan's CPI is expected to continue rising despite falling oil prices due to asymmetric pricing behavior by firms.
• 2.Energy CPI components like electricity and gas face upward pressure through late 2026 due to the fuel cost adjustment lag.
• 3.The Bank of Japan (BOJ) remains well-positioned for further policy rate normalization despite potential oil price stabilization.

Table of Contents

• Inflation still likely to accelerate despite lower oil prices, conditions to remain conducive to further BOJ rate hikes
• Inflation set to quicken further for core goods despite lower oil prices
• Electricity and piped gas prices might not fall until early next year
• Upside risks to inflation should make it easier for the BOJ to proceed with further policy rate normalization

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