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Japan Inflation Ticks Up as Long Holiday Gives BOJ a Short Break

Japan Inflation Ticks Up as Long Holiday Gives BOJ a Short Break

(Bloomberg) -- Japan’s key price gauge ticked higher in April as travel costs rose ahead of Japan’s longest postwar holiday, yet multiple factors are set to complicate the Bank of Japan’s mission to boost inflation over the coming months.

Consumer prices excluding fresh food rose by 0.9% in April from a year earlier, the ministry of internal affairs said Friday. The result matched an estimated by economists. Among the factors helping push up inflation were rising prices for package holidays abroad ahead of the 10-day holiday, and more expensive gasoline.

Japan Inflation Ticks Up as Long Holiday Gives BOJ a Short Break

Key Insights

  • Japan enjoyed an extended public holiday starting at the end of April to mark the change of emperor, sparking a 15% jump in overseas travel costs that together with gains in accommodation prices bumped up overall inflation by 1.1 percentage point. Japan’s stock market was closed for its longest stretch in the postwar period.
  • Gains of more than 35% in oil prices since the beginning of the year have helped reignite some upward movement in Japan’s consumer prices, but the impact of lower mobile phone charges and free preschool education starting in October will add to downward pressure as the year progresses.
  • Top government spokesman Yoshihide Suga told Bloomberg News earlier this week that mobile phone charges could be cut by more than 40%, upping political pressure on carriers to reduce fees. Mobile charges have been falling so far at a pace of around 4.3% from a year earlier.
  • While an uptick in prices will be welcome news at the Bank of Japan, giving it even less reason to consider ramping up stimulus, it still remains far from its 2% goal. The BOJ all but ruled out the likelihood of reaching the target by the end of March 2022 in its outlook report released last month.
  • One of the biggest risks to prices over the coming months is a scheduled sales tax hike that could hit consumption hard. In the BOJ’s guidance on policy, it says it will keep rates extremely low at least through next spring, taking into account the impact of the tax increase.

What Bloomberg Economist Says

"Looking ahead, we expect core inflation (excluding fresh food) to slow toward the summer. Policy-related factors -- lower mobile phone service charges and reduced education costs -- are the major drivers."

--Yuki Masujima, economist
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  • Overall, Japan’s consumer prices rose 0.9% in April, also in line with economists’ median estimate.
  • Stripping out energy and fresh food, consumer prices climbed 0.6%, also matching the consensus estimate.

--With assistance from Masahiro Hidaka and Shoko Oda.

To contact the reporter on this story: Shiho Takezawa in Tokyo at stakezawa2@bloomberg.net

To contact the editors responsible for this story: Malcolm Scott at mscott23@bloomberg.net, Paul Jackson, Henry Hoenig

©2019 Bloomberg L.P.