| 9 December 2023, Saturday |

Japan’s broadening inflationary pressures test BOJ’s dovish stance

Consumer inflation in Japan remained over the central bank’s goal in March, while an index excluding fuel prices climbed at the quickest annual rate in four decades, according to statistics, signaling expanding pricing pressure in the world’s third-largest economy.

The statistics may keep market hopes alive that the Bank of Japan (BOJ) would begin to scale out its enormous stimulus program later this year, which has been widely criticized for distorting bond markets and hurting financial institutions’ profits.

“Inflationary pressure is proving stronger than expected and could last for longer than thought,” said Shinke Yoshiki, chief economist at Dai-ichi Life Research Institute.

“But there’s still a lot of uncertainty on whether wages will rise durably and underpin consumption, which may keep the BOJ in a holding pattern.”

The core consumer price index (CPI), which excludes volatile fresh food, but includes energy costs, rose 3.1% in March from a year earlier, government data showed on Friday, matching a median market forecast.

It followed February’s increase of 3.1%, which was a sharp slowdown from January’s 41-year high of 4.2%, due largely to the effect of government subsidies to soften the cost of utility bills for homes.

An index stripping out the effect of both fresh food and energy, which is closely watched by the BOJ as a better gauge of underlying price trends, rose 3.8% in March from February’s 3.5% and accelerated for the 10th straight month.

The year-on-year rise in the so-called “core core” index was the fastest since December 1981, when Japan was experiencing an asset-inflated bubble economy.

  • Reuters