Inflation in Japan is above Bank of Japan’s target
2023.01.10 02:27
Inflation in Japan is above Bank of Japan’s target
By Kristina Sobol
Budrigannews.com – Core consumer prices in Tokyo, a leading indicator of trends across the nation, increased by 4.0% in December compared to a year earlier, exceeding the central bank’s 2% target for the seventh month in a row as inflationary pressure increased.
Market expectations that the Bank of Japan (BOJ) may modify its yield curve control policy to gradually phase out its massive stimulus will likely be supported by the increase, which was the fastest pace in four decades.
“The upward trend in Japan’s inflation is evident. Mari Iwashita, chief market economist at Daiwa Securities, stated, “The output gap will also likely turn positive soon.”
She stated, “All things considered, we’re seeing more data that will give the BOJ reason to eventually normalize monetary policy.”
Government data showed on Tuesday that the rise in the Tokyo core consumer price index (CPI), which excludes fresh food but includes fuel, exceeded a median market forecast of 3.8% and the 3.6% gain seen in November.
Core CPI in Tokyo at a new 40-year high The core CPI was 4.2% higher in April 1982, the last time Tokyo inflation was faster.
The Tokyo core-core CPI index, which excludes fuel and fresh food, increased by 2.7% in December from the previous year, following a 2% increase in November.
The likelihood that nationwide consumer inflation remained above the BOJ’s 2% target in December is increased by the rise in the Tokyo CPI.
Sources told Reuters that the BOJ will probably raise its inflation forecasts at the rate review next week. This shows that the BOJ is convinced that strong domestic demand will keep inflation at or near its target of 2% for years to come.
According to BOJ Governor Haruhiko Kuroda, the central bank must continue to support the economy until the current cost-push inflation is replaced by demand-driven inflation accompanied by higher wages.
However, since the BOJ shocked the markets last month by widening the band surrounding its 10-year bond yield target, investors anticipated a subsequent rate hike, Japan’s long-term interest rates have increased.
Analysts assert that the central bank’s extensive market intervention has failed to correct yield curve distortions, highlighting the difficulty it faces in mitigating the rising cost of prolonged easing.
Additionally, it is unknown whether Japanese businesses will increase wages sufficiently to cushion the impact of rising living costs on households.
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Separate government data showed on Tuesday that household spending fell unexpectedly by 1.2% in November compared to a year earlier. This was the first drop in six months in a sign of the fragility of private consumption.
