Japan’s key inflation gauge rose further above the central bank’s target level of 2 percent, a result that will likely keep speculation smoldering over possible policy adjustments, despite Bank of Japan (BOJ) Governor Haruhiko Kuroda’s continued commitment to ultra-low rates.
Consumer prices excluding fresh food last month climbed at a faster pace of 2.2 percent from a year earlier, with fuel costs amplified by a weaker yen and higher processed food prices the main contributors, Japanese Ministry of Internal Affairs data released yesterday showed.
The result matched economists’ estimates and would have been stronger without the impact of ramped-up government measures to limit gains in fuel prices.
Despite the continued price gains, the Bank of Japan is unlikely to budge from its position as an outlier among global central banks any time soon.
Even as the US Federal Reserve carries out jumbo rate hikes to tackle inflation and the European Central Bank joins the global policy tightening wave with its first rate rise in more than a decade, the Bank of Japan remains unconvinced that local inflation is sustainable.
Still, the ongoing gains above the price target pose a communications challenge for the Bank of Japan. Its persistent easing has come under criticism, as it has helped the yen slide to a 24-year low versus the US dollar, amplifying the soaring import costs of food and energy for households.
“What’s happening in Japan is still cost-push inflation, not the sustainable inflation the BOJ is looking for backed by wage gains,” said Taro Saito, head of economic research at the NLI Research Institute. “Service prices still aren’t rising much. So today’s data won’t make the BOJ rethink its view.”
Details of lat month’s inflation data offer some support for the central bank’s argument that the current inflation is largely based on cost-push pressure.
Energy costs remained the main upward driver, rising 16.5 percent from the previous year.
Processed food contributed about three-quarters of a percentage point to overall inflation, helping nudge the figure up.
Prices excluding fresh food and energy rose 1 percent, for the biggest gain since February 2016.
The central bank now sees core inflation averaging 2.3 percent in the year ending in March next year, the first time it has predicted price gains above 2 percent for the current 12-month period outside tax hike years since introducing the target in 2013.
It then sees inflation weakening below its goal in the following year, a sign that sufficient price gains will not last.
After Thursday’s decision, Kuroda said that he had “no intention at all” of raising interest rates while the economy still needed help and prices gains were not backed up by strong wage hikes.
The Bank of Japan does not target foreign exchange levels, he said, but added that marginal policy tweaks would fail to stop weakness in the yen.
With the central bank hunkering down on its position, the Japanese government has stepped in to help rein in soaring power and food prices.
Japanese Minister of Finance Shunichi Suzuki yesterday said that the government is monitoring the possible negative impacts of rising prices on the economy such as cutting into households’ spending power.
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