SINGAPORE (ICIS)–Japan’s core consumer
inflation in January rose by 2.0%, matching the
Bank of Japan’s (BoJ) price stability target
and supporting expectations that the central
bank will end its ultra-low interest rates
policy by April.
Consumer inflation at lowest since March
BoJ’s benchmark interest rate at -0.1%
since Jan 2016
Weaker yen drives up import costs
The core consumer price index (CPI) – which
excludes volatile fresh food prices – in
January weakened from 2.3% in the previous
month, marking its third straight month that
the country’s inflation has slowed, data from
the Statistics Bureau showed on Tuesday.
January’s core CPI reading also marks its
lowest point since March 2022 as cost of
imported raw materials decreased but the number
came in higher than market expectations.
“[BoJ] Governor Kazuo Ueda has expressed
confidence of anchoring inflation above the
government’s target of 2% and inflation reading
is expected to pick up in February as the
impact from the government’s price relief
measures fades on a year-on-year basis,
boosting market expectations that the BOJ is
nearing the end of its ultra-loose monetary
policy soon,” Malaysia-based HongLeong Bank
said in a research note on Tuesday.
The sharp depreciation of the yen has caused
Japan’s import bill to soar.
At 03:45 GMT, the yen was trading at Y150.48
against the US dollar, down by more than 6%
from the start of the year.
Japan relies significantly on imported crude
oil as it lacks substantial domestic
production. About 80-90% of its crude oil
imports are sourced from the Middle East,
according to the International Energy Agency
While the country’s domestic refineries can
satisfy demand for transportation fuels, it
imports liquefied petroleum gas (LPG) and
naphtha heavily as domestic production does not
meet the required levels.
ALL EYES ON BOJ
The BoJ is widely expected to end its negative
interest policy, introduced in January 2016, by
April this year.
The policy was kept for years to stimulate
credit growth and investment, in the central
bank’s fight against deflation.
In its latest meeting in January, the central
bank kept its benchmark interest rate at -0.1%,
but its quarterly economic report hinted at
possible policy normalisation.
For the whole of 2023, Japan’s consumer
inflation posted an annualized average of 3.1%,
up from the previous year’s 2.3% average and
the highest recorded since 1982, because of the
weaker yen, which made imports more expensive.
Despite BoJ officials’ confidence in hitting
the 2% inflation target, recent data undermines
this view following two consecutive quarters of
GDP contraction due to weak consumption.
Japan’s economy shrank by an annualised rate of
0.4% in the fourth quarter of 2023, following a
2.9% contraction in the July-September period.
For the whole of 2023, it posted a
Because of the recession in the second half of
last year, the country was overtaken by Germany
as the third-biggest economy in the world.
“The challenging growth outlook for Japan adds
further risk to a delay to our projected
timeline for BOJ normalisation in 2024,”
Singapore-based UOB Global Economics &
Markets Research said.
“That said, we still expect BOJ’s normalisation
to commence only after 2024’s Shunto Spring
wage negotiations between major corporations
and unions which takes place around March,” it
Shunto is the Japanese term for “spring wage
offensive”. The season, which is typically
between February and April, refers to a period
when thousands of Japanese labor unions
simultaneously negotiate wages and working
conditions with their employers.
Focus article by Nurluqman
Thumbnail image: Large container cranes
stand at a port in Tokyo, Japan on 15 February