What’s behind the rebound in “core-core” inflation?

A closely-watched measure of underlying inflation in Japan has rebounded recently, raising hopes that the Bank of Japan’s easing efforts are finally gaining traction. But most of the rebound in “core-core” inflation reflects the lagged effects of yen weakness. With a large amount of spare capacity keeping a lid on price pressures, underlying inflation is unlikely to rise much further. We retain our view that the Bank of Japan will announce more easing next month.