February 28, 2023
According to data, businesses passed on higher costs to consumers in January, pushing Japan’s core consumer inflation to a new 41-year high. This puts pressure on the central bank to gradually wind down its massive stimulus program.
The data highlight the challenge faced by policymakers as rising fuel and daily necessity costs impact households, many of which have not yet seen wage increases sufficient to offset the higher cost of living.
The core consumer price index (CPI) for the entire country, which includes energy costs but excludes volatile fresh food prices, increased by 4.2% in January compared to a year earlier, matching the median market estimate and picking up speed from the 4.0% annual gain seen in December.
The increase in January was the quickest since September 1981, when the import-dependent economy of Japan was hit by a spike in fuel prices brought on by a Middle East energy crisis.
The data showed that core consumer inflation has now gone above the Bank of Japan’s 2% goal for nine consecutive months, primarily due to the ongoing increases in fuel and raw material prices.
Yoshimasa Maruyama, chief economist at SMBC Nikko Securities, predicted that inflation would likely peak in January and stay above the BOJ’s 2% goal for a while.
However, he added, “there are doubts as to whether the rise in inflation will be sustained, as it is still largely fueled by food and fuel expenses.”
The BOJ’s yield control policy has come under attack by markets betting that high inflation will compel the bank to raise interest rates, so incoming Gov. Kazuo Ueda will have a difficult time defending it.
Ueda is anticipated to replace current Prime Minister Haruhiko Kuroda in April if parliament gives its approval. The BOJ will announce its inflation forecasts stretching to fiscal 2025 for the first time at Ueda’s first policy meeting on April 28.
In the fourth quarter of last year, Japan’s economy avoided going into recession, but it recovered much less than was anticipated due to a decline in company investment.
Despite challenges from rising living costs, experts say that Japan’s delayed recovery from the COVID-19 pandemic will be hampered by uncertainties over the future of the global economy.
Source: NIKKEI Asia
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