Today’s surprise drop in Japan’s CPI has sparked major concerns about the Bank of Japan’s ability to remain hawkish and support the currency.
However, yesterday economists at Morgan Stanley MUFG Securities warned that there could be oddities in the data. High school tuition fees in Tokyo were effectively abolished in Tokyo and took effect in April.
It’s unclear how the statistics agency would respond to this factor, but it appears to have led to a one-off sharp drop in prices. Morgan Stanley MUFG Securities estimates it could reduce core inflation by 0.7 percentage points and miss the figure by 0.5 percentage points.
This special factor helps explain why the yen largely ignored the release.
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