Japan’s CPI is likely to have remained negative in June, the fourth straight month of negative growth. According to a Societe Generale research report, the nationwide CPI (excluding fresh food) is expected to be -0.4 percent in June. Meanwhile, CPI excluding energy and food is likely to have risen by 0.6 percent year-on-year. This further affirms the slowdown of prices from the peak of 0.9 percent in November 2015.

Given that the longer-than-anticipated after-effect of consumption tax hike of 2014 continues, this along with heightened uncertainty regarding the global economy and market restraining equity prices and consumer confidence since the start of 2016, weak consumption patterns is exerting downward pressure on price levels, stated Societe Generale.

Given that the Japanese yen is strengthening and that the corporates are mulling reducing prices, the threat of re-emerging deflationary mindset is becoming stronger.

The fall in energy prices until now has eased core CPI (excluding fresh food) and pushed CPI (ex food and energy) down. But, the easing of CPI (ex food and energy) might accelerate and affirm that subdued demand is leading to stagnating price levels, said Societe Generale. Prices are unlikely to reach the Bank of Japan’s price stability target of 2 percent in FY 2017.

Following the upcoming monetary policy meet, the Bank of Japan is expected to lower its CPI ex fresh food projection from 0.5 percent for FY 2016 when it releases its next outlook report.

The Japanese government current project’s FY 2017 headline CPI at 1.4 percent, considerably lower than the 2 percent target level. In the Bank of Japan’s tankan survey, corporates’ inflation projections have dropped for four straight quarters and are quite farther from the 2 percent target. The forecast is at 0.7 percent for one year ahead and 1.1 percent for five years ahead.

It appears that projections for inflation have hovered around 1 percent and are not rising to the target level of 2 percent. The QQE with the negative interest rate program aims to accelerate inflation to 2 percent and anchor it at 2 percent and keep it at that level afterwards. BoJ governor Haruhiko Kuroda has reiterated that he would execute further easing utilizing all three dimension of the central bank’s monetary policy if required.

Markets have discounted the likelihood that there would be further easing during the July meeting, responding with the depreciation of yen and increasing equity prices, noted Societe Generale.

The July Tokyo CPI ex fresh food is expected to have been -0.4 percent year-on-year, the fifth straight month of negative growth. The impacts of rise in energy prices are becoming evident; but subdued consumer demand is cancelling out the positive impact and the overall possibility to continue exerting downward pressure on prices, stated Societe Generale.