Japanese Inflation Continues Rising But No Closer to Target
Japanese Inflation Continues Rising But No Closer to Target
(Bloomberg) -- Japan’s key price gauge rose at the same pace in December as in November, underscoring challenges for the Bank of Japan as it attempts to get faster inflation toward its 2 percent target.
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Key Takeaways
With inflation still not even halfway to the bank’s target, the continued weakness supports the view that the BOJ will keep its stimulus program unchanged. Even so, nearly half of 43 economists surveyed by Bloomberg are expecting a policy tightening this year.
The yen strengthened this week in response to the BOJ’s policy meeting and comments by Treasury Secretary Steven Mnuchin favoring a weak dollar. While it weakened overnight after President Donald Trump talked up the dollar, the yen is almost 3 percent stronger against the dollar this year. A stronger yen reduces inflationary pressures in Japan’s economy by lowering import prices and cutting exporters’ corporate profits.
| What Our Economist Says... Japan’s headline inflation picked up sharply in December but a steady core reading indicated reflation momentum was limited. The 1% headline reading is striking. The driver though isn’t so encouraging – a surge in fresh food prices, which will squeeze consumers.... Looking ahead, the core CPI will face increasingly challenging base effects, probably keeping it just below 1% in 1Q. Yuki Masujima, Bloomberg Economics |
Economist Views
- “The BOJ will keep its policy unchanged as inflation isn’t moving much. They know this will be a long-term battle,” said Masaki Kuwahara, senior economist at Nomura Securities Co.
- “A rise in inflation excluding fresh food and energy is needed before the BOJ adjusts its policy. But the measure isn’t picking up easily and so we don’t think the BOJ will make a move even though market expectations are rising.”
- “I think that we’ll continue to see a situation where prices will struggle to increase. Core CPI may or may not touch 1 percent, but I think it probably won’t get there and inflation will start getting weaker,” said Yasutoshi Nagai, chief economist at Daiwa Securities Co.
- “Looking ahead, it’s another story if wages clearly start to rise, but I don’t think the spring wage negotiations will be too successful despite talk of a 3 percent pay rise.”
Other Details
- Stripping out fresh food, consumer prices in Tokyo for January, a leading indicator for nationwide CPI, rose 0.7 percent (estimate 0.8 percent).
- Nationwide, energy prices rose 7.7 percent from a year earlier in December, contributing 0.54 percentage point to price gains.
--With assistance from Isaac Aquino Yuko Takeo and Yoshiaki Nohara
To contact the reporter on this story: Toru Fujioka in Tokyo at tfujioka1@bloomberg.net.
To contact the editors responsible for this story: Brett Miller at bmiller30@bloomberg.net, James Mayger, Andy Sharp
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