Leika Kihara and Takahiko Wada
TOKYO (Reuters) – Japan’s core consumer inflation accelerated to an eight-year high of 3.0 percent in September, challenging the central bank’s resolve to keep interest rates on hold Its ultra-loose policy stance continues as the yen’s fall to year lows continues to push up import costs.
Inflation data highlights the central bank’s woes as Japan faces an attempt to prop up a sluggish economy by keeping interest rates ultra-low, which in turn fueled an unwelcome slide in the yen.
The national core consumer price index (CPI), which excludes volatile fresh foods but includes fuel costs, was in line with the median forecast and rose 2.8% in August. Data on Friday showed it remained above the BOJ’s 2.0% target for the sixth straight month, the fastest gain since September 2014.
Prices extend pressure on Japan and the yen falls below the key psychological barrier of against the dollar, which may keep the market on the dovishness of the Bank of Japan in the coming months Speculation of a change in the faction’s stance continues.
“Current price increases are mainly driven by rising import costs rather than strong demand. Kuroda may maintain the policy until April during his term, but the key is whether the government will tolerate this This is the situation,” he said Takeshi Nan, chief economist at the Agriculture, Forestry and Finance Research Institute.
Analysts said the data raised the likelihood that the Bank of Japan will revise its consumer inflation forecast at its policy meeting next week.
The depreciation of the yen has been particularly painful for Japan as fuel and most raw materials are heavily reliant on imports, forcing companies to raise prices on everything from fried chicken to chocolate and bread.
The so-called “core-to-core” index, which excludes fresh food and energy costs, rose 1.8% year-on-year in September, up from 1.6% in August and the fastest annual increase since March. speed2015.
The core-core index, a key gauge of the underlying strength of inflation closely watched by the Bank of Japan, was close to its 2% target, casting doubt on the central bank’s view that the recent rise in prices will prove temporary.
Inflation remains subdued in Japan compared to rising prices in other major economies, and the Bank of Japan has pledged to keep interest rates ultra-low, still an outlier amid a global wave of monetary policy tightening .
Bank of Japan Governor Haruhiko Kuroda stressed the need to focus on supporting the economy until wage growth picks up enough to compensate for rising living costs.
And Japan’s union lobby has pledged to demand a wage hike of around 5% in next year’s wage negotiations, as fears of a global recession and weak domestic demand cloud the outlook for many companies , analysts doubt that wages will rise so much.
While commodity prices rose 5.6% year-on-year, service prices rose only 0.2%, according to September CPI data, suggesting Japan’s inflation is still largely driven by cost drivers.
“Consumer inflation could slow at 2023. If so, even with a change in central bank leadership next year , any adjustment to the Bank of Japan’s easy monetary policy will be trivial,” said Yasunari Ueno, chief market economist at Mizuho Securities.
His second five-year term expires in April next year. The terms of his two deputy governors will also end in March.