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Japan's core consumer inflation rate accelerated to 3.0% in September, setting an 8-year high. This challenges the Bank of Japan's determination to maintain its ultra-loose policy stance as the yen falls to a 32-year low and continues to push up import costs.
inflation data highlights the dilemma faced by the Bank of Japan: It is trying to support a weak economy by maintaining ultra-low interest rates, which in turn exacerbates the unwelcome decline of the yen.
The Japan Core Consumer Price Index (CPI) released on Friday does not include fresh food with high fluctuations, but includes fuel prices. The index's rise is in line with the market's median expectations and continues the gain of in August, which was 2.8%. Data shows that the interest rate is above the Bank of Japan's 2.0% target for the sixth consecutive month, the fastest gain since September 2014.
Japan's ever-expanding price pressure, as well as the key psychological threshold for the yen to fall below 150 against the dollar, may keep speculation that the Bank of Japan's dovish stance has been adjusted in the coming months.
"The current price increase is driven mainly by rising import costs rather than strong demand. central bank governor Kuroda Haruhiko may maintain policy until April during his term, but the key is whether the government will tolerate this situation," said Takeshi Minami, chief economist at the Institute of Agriculture and Forestry and China Financial Research.
Analysts said the data increased the likelihood that the Bank of Japan will raise consumer inflation estimates at its policy meeting next week.
Because Japan relies heavily on imported fuels and most of the raw materials, the depreciation of the yen has had a particularly serious impact on Japan, forcing Japanese companies to raise the prices of a series of commodities such as fried chicken, chocolate and bread.
, the so-called "core-core" index, which excludes fresh food and energy costs, rose 1.8% year-on-year in September, up from 1.6% in August, marking the fastest annual growth since March 2015.
The "core-core" index that the Bank of Japan closely watched, regards it as a key indicator for measuring the potential intensity of inflation. The index is rising towards a 2% target, questioning the central bank's view that the recent price increase is only temporary.
Compared with the price increase of in other major economies, Japan's inflation level remains moderate, and the Bank of Japan has promised to keep interest rates at ultra-low levels, which is still an outlier in the global monetary policy tightening wave.
Bank of Japan Governor Haruhiko Kuroda stressed that it is necessary to focus on supporting the economy until wages increase is enough to compensate for the impact of rising cost of living.
Although Japanese union lobby groups have promised to demand a salary increase of around 5% in wage negotiations next year, analysts have doubts about whether the raise will be so high, as concerns about the global economic recession and weak domestic demand have cast a shadow on the outlook for many companies.
html September CPI data showed that although commodity prices rose by 5.6% year-on-year, service prices rose by only 0.2%, indicating that Japan's inflation is mainly driven by cost-driven factors. "In 2023, consumer inflation may slow down. If so, any adjustment to the Bank of Japan's loose monetary policy will be trivial even if the central bank's leadership changes next year."Kuroda's second five-year term will end in April next year. The terms of the two vice presidents will also end in March.
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