Japan’s core inflation accelerated in February, but an index measuring broader price movements slowed sharply, data showed, highlighting uncertainty over when the central bank will raise interest rates again.
While rising wages and import costs resulting from further declines in the yen could support price growth, some analysts expect inflation to slow below the Bank of Japan’s 2% target this year as the domestic demand continues to be moderate.
Markets are looking for clues as to when the central bank will raise interest rates again following Tuesday’s decision to abandon its monetary stimulus program, historically moving away from a focus on reflation of growth through aggressive easing.
The headline consumer price index, which excludes fresh food but includes energy products, rose 2.8% in February from a year earlier, government data showed, matching the median of market forecasts .
The number was higher than the 2.0% increase seen in January, largely due to the base effect of the rollout of energy subsidies last year.
But inflation as measured by an index that excludes the effect of fuel, closely watched by the Bank of Japan as a proxy for broader price trends, fell to 3.2% in February from 3.5% in January, marking the slowest annual pace since January 2023.
“There are no signs of the overreach that Bank of Japan governor (Kazuo) Ueda said is necessary for the bank to further tighten monetary policy,” said Marcel Thieliant, Asia-Pacific director at Capital Economics.
“In fact, we still expect inflation to be below the Bank of Japan’s target by the end of the year.”
Core consumer inflation has exceeded the central bank’s 2% target since April 2022, initially driven by a wave of price increases by companies that passed on rising commodity costs to households.
The central bank described its decision to abandon negative interest rates on Tuesday as driven by signs that robust demand and prospects for higher wages encouraged companies to continue raising prices of not only goods but also services.
Bank of Japan Governor Ueda said Tuesday that the central bank could raise interest rates again if inflation exceeds expectations or if upside risks to the price outlook increase significantly.
Source: Terra
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