We all saw that Shinzo “Super Mario” Abe, Japan’s prime minister, managed to drill a hole through the earth from Tokyo to Rio de Janeiro. So now there’s this link between the countries – which presumably you could drop things through – why doesn’t Brazil just tip some of its excess inflation in? Because, gee, Japan could use a bit of it, with core CPI now at its worst since 2013.

That will put more pressure on the Bank of Japan to take action and ease monetary policy further at its September meeting, having disappointed markets last month with only an expansion to its ETF purchase programme and a promise to review its quantitative easing programme and negative interest rate policy at this upcoming meeting.

The headline consumer price index shrank 0.4 per cent year-on-year in July, steady on June and in line with market expectations.

But the core reading of inflation, which strips out fresh food and is what the BoJ is trying to push to its 2 per cent target, shrank 0.5 per cent last month, down from June’s minus 0.4 per cent pace, and expectations deflation would hold steady at that level.

This is the lowest reading for core CPI since March 2013 and the fifth straight month of deflation, the longest bout since the six months from November 2012 to April 2013.

There was also disappointing news with the so-called core-core reading, which strips out all food and energy prices. Of all Japan’s nationwide flavours of inflation, this one is still in positive territory, but only just. The core-core CPI grew by just 0.3 per cent year-on-year last month, down from June’s 0.5 per cent pace, and weaker than economists’ expectations for it to moderate to 0.4 per cent.

This is the core-core’s lowest reading since October 2013, at the end of which month the BoJ decided to boost its quantitative easing programme.

The yen has been remarkably well-behaved in the wake of today’s inflation numbers, sitting only marginally weaker (by 0.03 per cent) at ¥‎100.56 per dollar, basically where it was before the data were released. It remains to be seen if that calmness will remain once the stock market opens, or once European traders have a chance to pore over the inflation numbers.

Disappointment with the BoJ’s actions has seen the yen strengthen toward the ¥‎100 mark, a level last seen in the aftermath of the UK’s vote to leave the EU. At these levels, government officials have said they are “closely watching” the foreign exchange markets.

Ahead of today’s data release, analysts at Barclays said:

Year on year, the upward push on prices from earlier JPY depreciation is fading. The Nikkei CPINow T-index, a gauge of daily price trends, was down 0.01% y/y as a seven-day moving average as of 16 August.This marked the first such negative reading since 9 April 2015, confirming a gradual weakening of momentum in the price trend.

This comes at a time when the local media are starting to report on price cuts to reflect JPY appreciation. For example, on 17 August, the Nikkei newspaper reported that major overseas luxury brands will lower their prices to correct the domestic and overseas price gap that has emerged with the strengthening of the JPY. With the import prices of food coming under downward pressure, we also expect a gradual increase in reports on import price reductions in other areas accompanying JPY appreciation.

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