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Japan’s Inflation Hits 8-Year High, Tests BOJ’s Soft Policy

Japan’s core consumer inflation rate rose 3% last month to a new high, adding pressure on the Bank of Japan and its soft interest rate policy, which has caused the yen to plummet

The weak global outlook led to subdued manufacturing PMI in Japan in January, in data released on Tuesday, but the services sector and composite data were both up from December.
Chinese have emerged as the main buyers of Tokyo apartments costing $3 million or more, and they often pay with suitcases of cash, one real estate executive was quoted as saying. This image shows people walking through Ameyoko shopping district in Tokyo, in May 2022 (Reuters).


Japan’s core consumer inflation rate rose to a new eight-year high of 3.0% in September, in a test to the central bank’s dovish policy.

The inflation data on Friday exposes the challenge the Bank of Japan faces as it tries to bolster a weak economy via low interest rates, which have caused the yen’s plunge to 32-year lows and hit importers with higher costs.

The increase in the nationwide core consumer price index (CPI), which excludes volatile fresh food but includes fuel costs, matched a median market forecast and followed a 2.8% rise in August.

It stayed above the BOJ’s 2.0% target for the sixth month, and was the fastest pace of gain since September 2014, data showed on Friday.



‘Core-Core’ Index

The broadening price pressures in Japan and the yen’s tumble below the key psychological barrier of 150 to the dollar will likely keep alive market speculation of a tweak to the Bank of Japan’s dovish stance over coming months.

“The current price rises are driven mostly by rising import costs rather than strong demand. Governor Kuroda may maintain policy for the rest of his term until April, though the key is whether the government will tolerate that,” Takeshi Minami, chief economist at Norinchukin Research Institute, said.

The data heightens the chance the BOJ will revise up its consumer inflation forecasts in new quarterly forecasts due at next week’s policy meeting, analysts say.

The yen’s decline has been particularly painful for Japan due to its heavy reliance on imports for fuel and most raw material, forcing companies to hike prices for a wide range of goods including fried chicken, chocolates to bread.

The so-called ‘core-core’ index, which strips away both fresh food and energy costs, rose 1.8% in September from a year earlier, accelerating from a 1.6% gain in August and marking the fastest annual pace since March 2015.

The rise in the core-core index, which the BOJ closely watches as a key gauge of the underlying strength of inflation, toward its 2% target casts doubt on the central bank’s view that recent price rises will prove temporary.



Modest by Global Standards

With Japan’s inflation still modest compared with price rises seen in other major economies, the BOJ has pledged to keep interest rates super-low, remaining an outlier in a global wave of monetary policy tightening.

BOJ Governor Haruhiko Kuroda has stressed the need to focus on supporting the economy until wage growth picks up enough to compensate for the rising cost of living.

While Japan’s labour union lobby has pledged to demand wage hikes of around 5% in next year’s wage negotiations, analysts doubt pay will rise so much with fears of global recession and soft domestic demand clouding the outlook for many companies.

The September CPI data showed that while goods prices rose 5.6% year-on-year, services prices were just up 0.2% in a sign of how Japan’s inflation is still driven mostly by cost-push factors.

“Consumer inflation is likely to slow in 2023. If so, any tweak to the BOJ’s easy monetary policy will be minor even under the change to the bank’s leadership next year,” said Yasunari Ueno, chief market economist at Mizuho Securities.

Governor Kuroda will see his second, five-year term expire in April next year. The term of his two deputy governors will also end in March.


  • Reuters with additional editing by Jim Pollard




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Jim Pollard

Jim Pollard is an Australian journalist based in Thailand since 1999. He worked for News Ltd papers in Sydney, Perth, London and Melbourne before travelling through SE Asia in the late 90s. He was a senior editor at The Nation for 17+ years.


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