The economy in Japan is starting to show good signs.

The consumer price index in Tokyo had a lower inflation rate than expected in March, due to the significant reduction of government subsidies for public utilities that has led to a rapid increase in prices of other goods. The Core CPI in Tokyo increased by 3.2% over the past 12 months until March. However, it is predicted to decrease to 3.1% from the previous 3.3%. The overall CPI in Tokyo decreased slightly to 3.3% in March from 3.4% in the previous month.

The nationwide inflation data released later indicated that although government subsidies for public utilities have helped alleviate cost pressures, prices of household goods and food still remain high. This has resulted in higher inflation rates in Tokyo until March.

Nevertheless, the CPI announced in March is the second consecutive month where Tokyo's inflation rate has fallen back after reaching a 40-year high of 4.3% in January. The Core CPI in Tokyo has also been at its lowest level since October.

The main cause of the decrease in the value of the yen is the government's reduction in its support for electricity prices, which decreased by 6% in March. Earlier this year, the Japanese government provided an additional 2 trillion yen (at a rate of 1 USD = 133.01 yen) to offer support for public utilities and to help control the high inflation rate, but this was countered by continuous increases in the prices of other goods, primarily food prices which rose by 7.6%, while oil prices rose by over 12%. It is expected that the inflation rate will increase again towards the end of 2023, which may prompt the Bank of Japan (BOJ) to consider stricter policies.

Meanwhile, a survey of private sector activity found that the service sector in Japan expanded the most in over 9 years in March, indicating a faster recovery from the COVID-19 pandemic and helping to compensate for the still weak manufacturing sector.

The Purchasing Managers' Index (PMI) for the service sector rose to 55.0 in March from 54.0 in February, the highest rate of expansion since October 2013 and higher than the preliminary data of 54.2, and above the 50 level that separates expansion from contraction for the seventh consecutive month.

The PMI index, which covers both the manufacturing and services sectors, has expanded the most since June 2022, increasing to 52.9 in March from 51.1 in February. The index has been above the 50 level that separates expansion from contraction for three consecutive months.

Economist Usamah Pattani from S&P Global Market Intelligence said, "Japan's service sector economy signals a significant improvement in the first quarter due to a lighter impact from COVID-19 and stronger consumer confidence that supports production and orders."

"However, inflationary pressures remain a key risk factor during this important downturn period in Japan, especially as statistical data indicates the highest inflation rate in over 40 years, which is a clear change from the deflationary environment of the past."

Technical analysis data (5H)