Japan's core consumer inflation slowed for a third straight month in January but beat forecasts and held at the central bank's 2% target, keeping alive expectations it will end negative interest rates by April.
The 2.0% gain
in the core consumer prices index (CPI) was slower than the 2.3% increase in
December, internal affairs and communications ministry data showed on Tuesday,
underscoring views waning cost-push inflation from commodity imports could ease
the pain of higher living costs.
However, the
gain beat median market forecasts for a 1.8% rise, reaffirming expectations
hefty pay hikes will be offered by big firms at labour-management wage talks on
March 13 that would pave the way for the Bank of Japan (BOJ) to end negative
interest rates in March or April.
"The
January CPI leaves open the possibility of the BOJ hiking its policy rate at
the March meeting if preliminary Shunto results due a few days before the
meeting are encouraging," said Marcel Thieliant at Capital Economics,
referring to Japanese name for the wage talks.
"We still
consider an April hike more likely," Thieliant added. "For one thing,
inflation will jump well above 2% in February as base effects from the launch
of energy subsidies a year ago kick in, which would allow the Bank to tell a
more compelling story that inflation remains strong," he added.
Japan's core
consumer price index includes oil products but excludes fresh food prices.
The slowdown
was due in part to a big drop in energy costs, reflecting the base effect of
last year’s sharp rise and government subsidies to curb gasoline and utility
bills, in a sign of waning cost-push pressure that had kept core inflation at
or above the BOJ’s 2% target since April 2022.
Going forward, the key is whether wage hikes beat inflation
enough to give households purchasing power, so companies can continue to pass
on costs and keep inflation durably at the BOJ's 2% target, analysts say.
The so-called "core core" index that strips away
both fresh food and energy prices, closely watched by the BOJ as a narrow gauge
of the broader price trend, rose 3.5% year-on-year in January, following a 3.7%
rise in December.
"As far as prices are concerned, there's nothing in
today's data that would stop the BOJ's move towards ending negative rates,
which I think will come in April," said Izuru Kato, chief economist at
Totan Research.
"At the same time, the BOJ needs to strike a balancing
act in view of two straight quarters of contraction in gross domestic product
(GDP) and lackluster private consumption, while the weak yen have created
stagflation-like situation," he added, referring to a combination of low
growth and high inflation.