SINS OF TRADING

Perfectionism: There is no perfection in trading as far as making money on every trade or having a perfect system. All you can hope to be perfect at, is following your system, rules, and trading plan. A winning trade should be measured as one in which you followed all your preset guidelines. Even the best traders only average about a 50%-60% win rate at best over long periods of time. The key is having bigger winners than losers, not being perfect. Like in baseball where a .300 hitter can get into the hall of fame. A .500 trader in the market can become wealthy if his wins outpace his losses.

Fear:  Faith in your system is the only way to overcome your fear of trading. You must complete  testing on your system until you know that you have a valid edge over the market in the long term. You must see opportunity in trading not possible losses. You must take your systems trade signals each time and if you can’t overcome your fear of loss and failure then perhaps trading is not the best profession for you.

Pride:  We are not our trading account and staring at our profit and loss too much is a major detriment in one’s trading. Traders must cut losses at their predetermined stop, not pridefully hang on trying to prove they are right. We must separate ourselves from the trading. A person’s value is not tied to a trade or performance record. If we followed our system then we can’t view that as a personal loss. Our system failed us.

Impatience: Wait, take your entry signal when it is time and not a tick before your system triggers the trade. It’s important let our profits run their course and not prematurely take them until the trend has run it’s course. We need to give our trades room to breathe and not cut our loss until the system confirms it is time.

Greed: Traders should not chase a trade when it is to late. We must take our profits off the table when it is time and we should never allow a winner to turn into a loser. If this happens you have nobody else to blame but your greed greed. Over trading and trying to make more money when our system does not say it is time is born of greed and usually ends with a negative p&l statement.

Anger: Do not get mad at yourself.  Learn from your mistakes and move on. Every mistake gets you closer to learning what you need to do to become consistently profitable. Do not get mad at the “market” it is a voting machine and not an entity. Accept your losses and begin again.

Recklessness: Trading to big of a position size is risky,  reckless, and completely unnecessary. Only enter appropriate sized trades with  planned stop losses and then trailing stops to lock in profits while they are there. Follow your system and rules and if find yourself hoping and wishing the stock would stop moving against you instead of making decisions based on facts, you should exit that trade immediately.

We need to first realize what trading “sins” we are guilty of, then we can decide to repent and no longer commit them.

TRADING STRATEGY FOR THE WEEK STARTING 2nd SEPTEMBER 2013

Despite the roller coaster ride last week, the net weekly loss in

the sensex was less than one percent. The weekly closing was

at 18619. If the market reverses before moving above 19000,

then there could be a steep decline in the coming weeks. In this

scenario the downward targets could be 16885 and 15777. The

index has to close above 19250 to negate the bearish short term

outlook.

The Nifty closed at 5471. If the NIFTY is unable to make progress

on Monday morning, then we may see a level of 4880 and 4500 in

the coming few weeks. If the Nifty moves forward, then it faces

resistances at 5605 and 5720. The support on the downside is at 5180.

The stock that jumped over 30 percent last week was SESA GOA.

Last week the stock breached the resistances of 160 and 175. Now it

faces resistances in the 200-205 band. Only if it crosses this band ,

then we can see a target of 220 and 235. Downside supports are at

175, 160 and 140.

M&M FINANCIAL SERVICES has taken support at 235. The stock

faces hurdle at 260 level. A cross above 260 can take it to 285. The

Range of the stock is 215-260.Medium term supports are at 240 &

228.

Option traders can take short positions in DLF INDIA.

Sell Rs 100put  and 145call at Rs 4 & 5.8 respectively

For maximum profit DLF should settle between 110- 145.

Only a close below 101 or above 154 will make this position

Negative. Market lot is 1000.

NMDC has declined from 572 level in JANUARY 2010

It made a low of 92 The stock is in a minor uptrend and can reach

130-135 level

Exit  JP ASSOCIATES on break of 30 level.

FOLLOW THIS BLOG FOR MARKET CALLS AT 8.30A.M;

HAPPY TRADING

VIEW ON GOLD IN COMING YEARS

It’s no secret that Citi’s top chartist Tom Fitzpatrick is bullish on Gold. Earlier this week he reiterated his call that the yellow metal would head to $3,500 in a few years.

 Fitzpatrick offered more color in some follow-up commentary published in King World News.

He employs his analogy of the “stairway to hell” which tracks the debt ceiling.

The recent “squeeze in Gold” has sent it significantly below this “stairway to hell” chart (Debt limit) which has continued higher.  As we said earlier, we do not believe that this fall in Gold will be sustainable and expect new highs in the trend eventually.  As we also said, we have retained a long-term target of about $3,500 for some time on this Gold price based on a comparison of this period and that seen in the 1970’s….

“As we headed towards the last Presidential election there was a considered view in the markets that by the end of President Obama’s 2nd term the debt limit could be as high as $22 trillion.  Then we got the sequester, a more rosy economic outlook, tapering talk and all this has been forgotten.  For how long? 

The market dynamics above combined with the change of leadership at the Fed may well be “resurrecting that thought.”  If so, our 2nd favorite Gold chart comes into play. 

Fitzpatrick thinks that $22 trillion debt limit will come within three years, which is when we could see $3,500 gold.

“As we continue to spend more than we earn and shift that ahead.”liability to the next generation, Gold has shown itself to be a very effective hedge against that policy,” he said.

“We firmly believe that the Gold correction has “run its course” and that much higher levels will be seen in the years

ahead.

WHERE WILL RUPEE HEAD NEXT WEEK.?

Last Close :65.705

Three Consecutive close below 65.8326 level will take USD down to 64.7035–64.3271

Not Breaking low of (Friday )……….Rally upto 66.5762 ,66.7965 on card.

If Sustains above 66.7965 level for 30 minutes or more then More Firework not ruled out.

Next Target :67.4575 , 67.36  67.78.

Three Consecutive close below 65.9137 + Weekly Close below this level if happens,

 Nonstop PANIC  upto 63.93-63.268 not ruled out in coming Week.

.WATCH UNEXPECTED LEVELS IN THE LAST WEEK

OF SEPTEMBER OR EARLY OCTOBER.

TRADING QUOTES

1. Don’t try making sense out of it. You’re in an insane asylum – things are not going to make sense, people will do things that don’t make sense, that they cannot adequately explain. People don’t know what makes them tick, only that they tick.

2. Happiness, of course…is all in your head. If you don’t know that, if you haven’t come to that realization, you will never be happy.

3. The Bull Market Syndrome. People, when they are met with success, take personal credit for it (bull markets breed geniuses), and when they are met with failure, blame luck.

4. Actually, luck is responsible for both! If you can only die by being struck by lightning, eventually, you will die by being struck by lightning! Conversely, if a man were to live forever, and bought a lottery ticket every week, eventually, he will win the lottery, with a probability that approaches certainty. Just stay the course, keep doing today what you must do today. As Woody Allen says, “Fifty percent of success is just showing up.”

Luck Trumps Brains. To get luck, keep showing up each day with your shoes on.

5. Creativity trumps money every time.

6. Fortunately in life, you don’t have to succeed at everything you do, only a few things. One success often justifies all prior attempts.

7. You can buy great a education – you can not buy brains.

8. The Oswald Principle: Usually, the best course of action in life, is to take no action (and usually, the best thing to say is nothing!). The guys in jail or there not because they did not do anything. Usually, you should just sleep in! If nothing really bad happens today, as my friend Oswald said to me in eighth grade, it’s been a good day!

9. You don’t have the problems you think you do. Actually, the only real problems are health and criminal problems. Everything else is just a frivolous, meaningless nuisance.

10. Never say never. Everyone, however righteous they may claim to be, however upstanding they say they are, will, under the right circumstances commit the crime. A cold morning, wet, hungry, tired, angry….they’ll do things they never dreamed they would!

11. Everything is going to be OK. It always is.

12. You never know what’s going on in someone else’s life. Before you do or say something nasty to them, realize this. Perhaps they have just gotten some awful news of some sort. You never know what is going on in someone else’s life.

13. Don’t pressure yourself. Just take care of today’s things today, and relax…we got all the time in the world. The proper attitude in performance of anything, be it athletic, mental, etc., is a kind of relaxed, aware, confident attitude. You see it manifest in sport all the time (Ali, Ramirez…..or hitting a gold ball).

14. Don’t complain and don’t explain.

15. Don’t react or engage emotionally with others. 

16. Similarly, if it is someone you love or must live with, trying to engage you in an argument, practice avoidance. Just try not to be around them, to avoid them. Go out for a walk.

17. Live “in the tunnel,” but think outside of it. In other words, deal with the mundane, immediate issues at hand, think as out-of-the-box as you can.

18. You can always “lift” more than you think you can.

19. Women will be as bad as they are allowed to be.

20. You should pray for your enemies — you need them. You need to have some enemies to keep life interesting.

21. Treat those you love as though they were going to die at midnight.

22. Your body is a record of how you have cumulatively cared for it.

23. The easiest way to learn things in life, is through observation. Sit back, watch all the ways everyone around you will figure out to how to screw up.

24. There are two ways to learn something. The easy way and the hard way. With the easy way, someone tells you something and you learn it. The hard way is the way we usually learn things, and we usually don’t learn it the first time through. So the easy way, you see, is the equivalent of a windfall. (note to teachers – you can cause the easy way in others if you can convey a different perspective on a problem, a manner wherein the person learning thinks, “Ah, I see it now.”). The moral here is that there is no point lending money, time or advice to help people out if they are not going to listen to you, if they are going to insist on remaining on their own vector, unchanged by your advice, wherein they are going to learn their lesson the hard way with or without your giving them time, money or advice. So don’t give it unless they are going to incorporate it.

25. Do not succumb to the suffocating culture of comfort. If you are comfortable, you are in trouble, you just don;t see it heading towards you.

26. Remember – your best trades are ahead of you.

EMERGING MARKETS CURRENCY INTERVENTION

Not ringing any bells?

Well oh dear. You’d best get to know him. According to Reuters, he’s Dipak Dasgupta, the Indian finance ministry’s principal economic adviser. Which sounds like far too mild-mannered a title considering how Dasgupta’s just responded to India’s exposed position in the great EM sell-off.

Reason: the whopper of a statement he put out on Friday promising coordinated intervention from emerging market central banks in a bid to shore up the rupee.

What’s more, this was coming in a matter of days, not weeks.

From Reuters:

Dasgupta said there had been correspondence among the countries on the plans in the last few weeks and predicted action would come quickly, but he declined to share specific details of the discussions. “It is going to happen in a matter of days rather than weeks,” he said. “Brazil and India can start the move.” It was not immediately clear how many takers there were for such a proposal from other major emerging economies.

Although there wasn’t (err) much of a market impact following the Reuters story’s publication (in fairness, Indian markets were winding down for the day).

We’re not too surprised.

After all, what Mr Dasgupta’s effectively asking for is that other EM countries with larger FX reserves — such as China, Russia and Brazil — be kind enough to substitute big chunks of their foreign exchange (most notably the US dollar sort) for rupees instead.

This is, to be sure, a big ask.

No, it’s actually a huge ask.

Even China with its bold aspirations for reserve diversification would be shy to move on this one. Though, we should point out that Dasgupta is actually targeting a much broader range of friendly EM central banks: there’s also South Africa, Turkey and Malaysia on his list.

But asking these EM countries to dump foreign exchange willy nilly into the foreign exchange market is unlikely to have much impact. Even if, hypothetically, they were to form a support system in which they all displaced foreign reserves in favour of each other’s respective currencies, domino style — this might boost EM currencies overall but it would do little to boost the rupee.

Intervention, after all, is a game of relativity. Unless these EM countries are willing to accumulate Indian rupee-denominated assets disproportionately to each other’s, the chances of the Indian currency getting a lift out of such talk is slim.

Much more logical would be to sell a bunch of India’s gold internationally in exchange for dollars.

Or perhaps… that’s what the coordinated intervention will turn out to be? China acquiring some Indian gold in exchange for dollars, which India then uses to defend the rupee?

No, we daresay what the story is much more likely to be is that, well… FT Alphaville (not so) fondly remembers the dog days of the eurozone crisis in 2011 and 2012.

Barely a week would go by without a rumour that the IMF (or the Chinese, or the Brazilians, or anyone from the Lands of Suitably Large FX Reserves) was set to fund the EFSF (or the ESM, or the EIB — you get the pattern) with loadsamoney to buy up the bonds of Italy or Spain or whoever was in trouble. These stories would usually be good for a quick pop in US equities before fading until the next week’s bazooka.

Since the EM countries worst-hit by capital outflows seemingly can’t directly convince the major western central banks to think of their plight before tightening policy… why not nick from that part of the playbook?

INDIAN GDP GROWTH LOWEST IN FOUR YEARS

With no sign of the economy recovering, India’s GDP for the June quarter grew by 4.4 percent, the lowest in the last four years.

The country’s economy had grown by 5.4 percent in same period of the previous fiscal.

India’s economy grew declined to 5 percent in 2012-13 from 6.2 percent in 2011-12. The economy had grown by 8 percent for two consecutive years prior to that.

While manufacturing and mining sectors have been one of the reasons behind the fall in the GDP, the fall in rupee, which hit a record low of 68.85 earlier this week, is seen as one of the major factors too.

Addressing the Parliament on Friday prior to the announcement of the GDP growth, Prime Minister Manmohan Singh assured the country on the rupee and economy stating that the economy would grow by 5.5 percent in the current fiscal.

“There is no reason to believe that we are going down the hill and that 1991 is on the horizon,” the prime minister said in the Rajya Sabha.

He also asserted that India was now heading back to a 1991-like crisis when the country was forced to pledge its gold to pay import bills.

India’s gross domestic product growth of five percent in the financial year ended March 31, 2013 was the lowest in a decade.

INDIAN AIRPORTS, TOUGH TIMES AHEAD

In the prevailing disequilibrium in Global economic factors, the Indian Aviation Sector, especially Airports, also went slithering down in terms of growth after a dream run in the last few years. Below are the key highlights indicating the same:

- Passenger traffic de‐grows by 1.9% in FY13, domestic drag: Indian airports witnessed passenger (PAX) de-growth of 1.9% in FY13 (13.2% growth in FY12), with 159m travellers using them for their travel. Excess capacity further resulted in dwindling load factors. There was a 200bps y-o-y fall in the share of domestic PAX at 73% which was evident due to a y-o-y de-growth in this category at -4.3%. International PAX y-o-y growth (though a gain of 200bps y-o-y in total share) remained subdued at 5.4% in FY13 as compared to 7.6% in FY12. With this tally, the 5-year CAGR of total PAX stands at 6.4%. With an increase in ATF prices, depreciating rupee, levy of airport and service charges, general slowdown in economic cycle and increasing crude prices, the corporate and leisure travel plans will surely be curtailed. However, CAPA and other Industry players believe that Indian PAX traffic should grow by 5-8% during FY14E. In Q1FY14, PAX growth was at 3.5% y-o-y. To counter this, Indian airlines has resorted to massive discounts and fare war amongst them to gain the market share.

As per Airports Council International (ACI), two major Indian Airports, Mumbai and Delhi rank 48 (down by 4 places) and 37 (down by 3 places), respectively, based on the number of passengers handled in 2012. Hyderabad has moved to 2nd position from 3rd last year.

- Air Traffic Movement (ATM) also halts: As a result of the turmoil faced by airlines in India and abroad and exit of Kingfisher Airlines, ATMs y-o-y registered 4.2% de-growth at 1.4m ATMs. Again, Domestic ATMs took a hit and de-grew by 5.7% y-o-y; although, it was cushioned by a meek performance of International growth of 1.5% y-o-y. General Aviation carriers (excl. regular carriers) registered growth of 2.7% y-o-y. International ATM growth rates were higher in new geographies like Vizag, Bagdogra & Varanasi (Tier 3 airports) and Cochin, Hyderabad and Ahmadabad (metro airports). The higher growth in traffic at the above airports is due to an increase in frequency by existing airlines and start of operations by new airlines. In Domestic ATMs, geographies like Calicut, Rajkot, Tirupati (Tier 3 airports) and Srinagar, Mangalore, Chandigarh (Tier 2 airports) have gained major grounds. In Q1FY14, ATM de-growth has been 0.5% y-o-y.

- Cargo/Freight reports de‐growth: Indian Airports reported a 3.9% y-o-y degrowth in freight at 2.2m tonnes. De-growth was higher in International segment at 4.2% as against 3.4% in the Domestic sector. Total freight handled worldwide during this period has also witnessed a decrease of 0.1%. In Q1FY14, the cargo de-growth story continues with 3.6% y-o-y decline.

- How has privatization fared: Airports developed under PPP model currently handle 60-70% of passenger traffic in the country. While the
CAGR of PAX growth in the last five years has been 6.4% for Indian airports, airports with PPP model showed 11% growth during the same
period. Percentage of passengers handled by PPP Airports (which are mainly located in the metros) in comparison to all other airports has been
56.4% in FY13 which is down by 70bps y-o-y; this is mainly attributed to opening up of new regional airports. Similarly in ATMs, CAGR of PPP airports has been 5% over the last five years which is double the total ATMs. 

- Conclusion: The Indian airports dream run and golden era has been hindered as Airlines are bleeding, FDI is caught in regulatory glitches, Rupee is depreciating and economy overall is in a mess. Amongst the 125 airports (out of 136 airports) maintained by AAI in the country, only 10 are profit-making. After registering a collective loss of approx. US$1.6bn (airlines) and approx. US$0.1bn (airports) in FY13, Indian aviation players are likely to lose in FY14E too. However, development of regional airports is still on the priority list which is expected to aid the traffic growth.

PPP STANDS FOR PUBLIC PRIVATE PARTNERSHIP.

Our 

IMF VIEWS ON INDIA

India’s large fiscal and current account deficits have impacted market confidence, the IMF has said emphasizing that the rupee decline posed both challenges and opportunities for the country.

“The current situation presents a challenge, obviously, to the government of India, but also an opportunity for the government to continue with its policy efforts on a variety of fronts,” International Monetary Fund (IMF) spokesman Gerry Rice said.

Rice said the combination of large fiscal deficit and Current Account Deficit (CAD), reliance on portfolio inflows, among other things, have affected market confidence.

“But may be just stepping back on the situation in India, the combination of large fiscal and CAD, high and persistent inflation, sizable unhedged corporate foreign borrowing and reliance on portfolio inflows are longstanding vulnerabilities that have now been elevated as global liquidity conditions tighten, and this clearly has affected market confidence,” Rice said in response to a question.

The Indian economy is battling depreciating rupee and low investor confidence. The currency has dropped over 23 per cent since April and had touched a low of 68.80 to a dollar earlier this week.

The CAD, which is the difference between the inflow and outflow of foreign exchange, scaled to a record high level of $ 88.2 billion or 4.8 per cent of GDP in 2012-13. The government expects to bring it down to $ 70 billion this year.

With various fiscal tightening measures, the government was able to restrict fiscal deficit to 4.9 per cent of GDP in 2012-13.

To a query on the possibility of India selling its gold reserves to the IMF to prop up its currency, Rice said: “I wouldn’t want to speculate on any support or program needs”.

WHAT IS IN STORE FOR INDIAN STOCK MARKET ?

Geo-political tensions in Syria have led to a spike in oil and gold prices compounding India’s weak rupee (down 8.6% this week). While we think this will be short-lived, in this report, we look at a stress case scenario for India.

So where can the market go now on a worst case? The market is trading slightly below the long term average forward PE of 14.1x. However, at its low, the market tends to go to 10x whenever there is a global crisis. Given that the developed world is recovering, we are assuming current valuations for the export companies and 1SD below mean for the rest of the universe. Based on this we get a stress case index level of 16,000 for the Sensex.

Equity investors have not yet panicked in India: One key risk for markets is that FII holding at 21% (45% of free float) is close to all time highs. India remains vulnerable to any GEM sell-off.

History tells us to be wary of sharp recovery: Looking at past instances of sharp rupee depreciation of over 15%, the market has fallen in all the 3 instances on an average 21.5% (ranging from 4.5% to 47%)

Interestingly, markets recovered practically the entire loss 3 months later on all the 3 occasions. Markets will stop panicking when policy makers start panicking: Any policy measures to shore up the rupee by say quasi sovereign bonds/NRI bonds is the key and could lead to a spike in the rupee and help markets.

What about other macro variables?

Currency:  THE likely scenario is that the rupee stabilizes in the Rs63-69 band due to likely policy action. However, any hike in rates could see the rupee at Rs75/US$ by year-end.

.

 Growth: We continue to expect downgrades to GDP and earnings growth. In a stress case scenario, we could see GDP growth at 4% (vs current 4.8%) and earnings growth at 0% (vs current 7-8%).

 Bank NPLs: In a stress case, we could see Delinquency levels rising to ~4% from 2.8% and gross NPL’s rising to 5.8% v/s 3.4

DEBT A PROBLEM FOR INDIAN CORPORATES

Fitch Ratings says the majority of its portfolio of internationally rated industrial corporates in India has adequate hedging arrangements in place to minimise any potential reductions in operating cashflows arising from the rupee rout.

Moreover, most have sufficient headroom to absorb an elevation in reported debt levels post FX translation adjustments. Nevertheless, credit profiles are likely to weaken over the next 12 months and issuers on Negative Outlooks are in particular vulnerable to a downgrade if their operations deteriorate and the rupee rout is sustained. The Indian rupee (INR) has depreciated 20% versus the USD since the beginning of May 2013.

At the operating level most of Fitch’s rated portfolio of Indian industrial corporates are either naturally hedged via import parity-linked selling prices, or have hedging arrangements in place for more than 50% of their FX exposure (where changes in USD/INR are typically reflected with a lead time of three months). Accordingly higher raw material prices, due to the weaker rupee, on annual cash flow generation is not likely to be significant, but in the short term there is likely to be a month-to-month impact on the re-statement of debt, receivables and payables.

Metal companies including Tata Steel Limited(TSL, BB+/Negative) and Vedanta Resources (BB+/Stable) are likely to benefit at the operating level as most of their selling prices are denominated in USD while their costs are denominated in INR.

However, the weakness in the domestic economy could negate these benefits to some extent. The Steel Authority of India (SAIL, BBB-/Stable) imports approximately 80% of its coking coal requirements, but its product prices are import parity-indexed and hence appropriately hedged, but with a lead time of one quarter.

The more significant risk is likely to be higher reported debt levels stemming from FX translation adjustments, particularly for those companies with substantial foreign currency (FC)-denominated debt which is typically held at offshore subsidiaries. Higher reported debt levels will have a negative impact on a number of key credit metrics including financial leverage.

The ratings of TSL and Ballarpur Industries Limited (BILT, BB-/Negative) are already on Negative Outlook due to operational weakness and capex, and hence have limited headroom to cope with FX-induced higher debt levels. FC-denominated debt currently stands at USD444m (48% of total debt) for BILT and USD8bn (70% of total debt) for TSL. Fitch will analyse the performance of these companies for any significant weakening of operations which, coupled with higher debt levels, may result in a downgrade.

In the case of Tata Motors Ltd (TML, BB/Stable), UK-based Jaguar Land Rover plc accounts for over 75% of its revenue and 90% of its EBITDA. As the proportion of TML’s consolidated debt in FC currency is lower at 76%, the final impact from INR depreciation is likely to be positive.

National Debt India

TRADING IDEAS FOR 30th AUGUST 2013

NIFTY FUTURES faces hurdle at 5423 & 5449. ONE CAN BUY

5300 PUTS OF NIFTY KEEPING A STOP LOSS OF 5450.

IF NIFTY CROSSES 5450 THEN IT CAN GO UP TO 5525 & 5550.

BUY BHARTI AIRTEL WITH A STOP LOSS OF 292. THE

TARGET IS 315.

BUY WIPRO WITH A STOP LOSS OF 360. TARGET 400.

BUY R COM STOP LOSS 114 TARGET 128.

BUY HINDALCO STOP LOSS 102 TARGET 116.

BUY M&M STOP LOSS 780 TARGET 825.

BUY LUPIN STOP LOSS 790 TARGET 840.

BUY IDEA STOP LOSS 154 TARGET 170.

HAPPY TRADING !!!!!

JAPAN INFLATION RISES

Consumer price inflation in Japan rose to an annual rate of 0.7 per cent in July, its highest level in almost five years, as the effects of a weaker yen pushed up the cost of fuel and electricity.

The headline figure is likely to viewed with some satisfaction by policy makers trying to overturn more than a decade of deflation in Japan, which they claim has sapped companies’ willingness to invest while weighing on household consumption.

The Bank of Japan, under the firm direction of Shinzo Abe, prime minister, is aiming to keep monetary policy loose enough to achieve a 2 per cent rate of inflation by March 2015. Mr Abe, for his part, has adopted a more flexible approach to fiscal spending while pushing for various structural reforms to boost Japan’s attractiveness as an investment destination.

However, the figures showed that while resource-poor Japan is paying more for mineral fuels, a broader, demand-driven recovery is yet to take hold. Excluding fresh food, the all-items index rose by 0.7 per cent from a year earlier, and by 0.1 per cent from June.

But excluding the cost of energy from the calculation brings the yearly CPI to minus 0.1 per cent. The prices of items such as housing, furniture, medical care and culture and recreation all fell from a year earlier, while charges for fuel, light and water rose by 6.4 per cent.

“We are now in an early stage of an inflationary condition, so it can’t be helped that cost-pressure is leading the overall trend of the CPI numbers”, said Junko Nishioka, chief economist at Royal Bank of Scotland in Tokyo.

Given that Japan’s output gap is narrowing – closing to minus 1.9 per cent in the second quarter, from minus 2.1 per cent a year earlier, on government estimates – the “positive trend is likely to continue”, she said.

CPI in Tokyo in July, considered a leading indicator for the rest of the country, rose to 0.5 per cent from 0.4 per cent in June, she noted.

Other data released on Friday morning were positive. The jobless rate dropped to 3.8 per cent, from 3.9 per cent in June, while industrial production rose by 1.6 per cent on a yearly basis and 3.2 per cent on a monthly basis.

Household spending edged up 0.1 per cent from a year earlier, from a 0.4 per cent fall in June.

The headline CPI rate for July was the highest since a 1.0 per cent reading in November 2008.