Japan Dec. CPI Lower Than Expected, BoJ Hike Seen As Less Likely

Japan's December core CPI rose by just 0.1%, less than the 0.2% increase expected by economists and less than the 0.2% reading for Nov. Bank stocks were sold on the news as the overall market was influenced by selling in the U.S. The yen meanwhile continues to trade near four year lows against the dollar around ¥121.5/$1. A Japan-based Lehman Brothers economist comments, "This doesn't take a rate decision off the table, but it'll make it more difficult for the bank to explain the need for a hike. If we get a decent gross domestic product report in February, with solid consumption numbers, the BOJ could decide to move." Finance Minister Koji Omi says Japan's CPI data is stable and sharp price rises would not be good. Cheaper oil is being blamed for some of the pressure on prices, but a Bank of Japan policy maker says all board members agree that "prices will return to a rising path once the adjustment of crude oil prices is over." The BoJ's next rate decision meeting is Feb. 20.

• Sources: Bloomberg, BusinessWeek-AP
• Related commentary: BoJ Maintains 0.25% Target; Nikkei Up, Yen Hits Multi-year Lows, Nikkei Briefly Touches 6 Year High, But Japan ADRs Lag, The Yen's Slide: How Much Longer?
• Potentially impacted stocks and ETFs: Mitsubishi UFJ Fin. Grp. (MTU), Mizuho Fin. Grp. (MFG). ETFs: iShares MSCI Japan Index (EWJ), iShares S&P/TOPIX 150 (ITF), BLDRS Asia 50 ADR Index (ADRA)

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