Japan’s key inflation gauge further accelerated to the fastest pace since 1981, an outcome expected to continue fueling speculation that the Bank of Japan would surprise markets again with policy change down the line.
Consumer prices excluding fresh food last month climbed 3.7 percent from a year earlier, the Japanese Ministry of Internal Affairs reported yesterday.
The result for the core index targeted by the central bank matched an estimate by economists. The gain in overall inflation was a touch weaker than expected.
Photo: AFP
Higher prices for processed food were the biggest driver behind the acceleration, as they further outstripped the impact of higher energy costs from a year earlier.
A wide range of government measures, including travel subsidies, helped keep price growth below 4 percent.
Still, following this week’s shock decision by Bank of Japan Governor Haruhiko Kuroda’s policy board to allow bond yields to move higher, the faster pace of inflation would keep speculation smoldering that the central bank is getting nearer to a policy pivot.
Core inflation has exceeded the bank’s 2 percent price target for eight straight months.
Inflation excluding fresh food and fuel has now reached 2.8 percent, pointing to strength in the underlying trend.
“A policy change may happen in the spring after the new governor takes the helm and wage negotiation results,” said Koya Miyamae, senior economist at SMBC Nikko Securities.
The market does not rule out change coming earlier, flagging that Kuroda has a record of suddenly changing his stance by 180°, Miyamae said.
“Kuroda can say something completely different from what he had been saying until just before the meeting, so the market tends to be skeptical,” he said.
Kuroda on Tuesday jolted markets around the world by announcing that the central bank would widen the 10-year bond yield target to about 0.5 percent either side of 0 percent, double the previous limit of 0.25 percent.
The governor said this was not a tightening move, but it also led to speculation that it is a step toward exiting from a decade of massive monetary easing.
Kuroda reiterated after the decision that he sees prices slowing next year and more wage growth is needed for sustainable price gains.
“Looking ahead, we expect core inflation to hit 4 percent in December and then slow to 2.7 percent in 1Q23, dragged down by new subsidies to discount electricity and gas costs starting in January and base effects,” Bloomberg economist Yuki Masujima said.
Goldman Sachs said that the central bank could remove its negative interest rate policy next.
Takatoshi Ito, a contender to succeed Kuroda also said that this week’s moves could be the first step toward an exit.
Last month, 882 food items including dairy products saw price increases, a Teikoku Databank survey showed.
The report also forecasts that the price tag of more than 4,400 food products would be raised next year, with an expected peak in February.
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