Inflation slowed in Japan for the second month in a row

Core inflation in Japan slowed for the second straight month in April, likely indicating that the Bank of Japan will be patient in raising interest rates, as consumption remains fragile.

While inflation is running comfortably above the central bank’s 2% target, policymakers are keen for Japan’s price rise to be driven by sustained domestic demand.

Government data showed on Friday that the nationwide core consumer price index, which excludes fresh food items, rose 2.2% year-on-year after rising 2.6% in March. It matched average market expectations.

The “core” index, which excludes fresh food and energy costs and is closely watched by the Bank of Japan as a key gauge of broader inflation trends, rose 2.4% after a 2.9% increase in March. This represents the slowest growth since September 2022.

The inflation data is seen as key to further decisions on rate hikes by the Bank of Japan, which wants to push interest rates higher but gradually after ending negative interest rates in March in a historic shift away from its decade-long ultra-easy monetary policy. Time.

“Weak consumption made it difficult to raise prices in April and May,” said Koya Miyamae, chief economist at SMBC Nikko Securities.

He added that the Bank of Japan would need to see core inflation stop slowing before raising interest rates. “I think a rate hike in June and July seems a bit premature.”

The Bank of Japan said a virtuous cycle of achieving a sustained and stable 2% price target and strong wage growth is critical to policy normalization.