Japan's core inflation is approaching 3% again, increasing pressure on the central bank to end its negative interest rate policy.
Figures released by the Bank of Japan (BOJ) on November 24 showed that core inflation (excluding food prices) was 2.9% in October. Previously, this figure had fallen for four consecutive months, to 2.8% in September - the first time below 3% since August 2022.
Inflation has been above the BOJ’s 2% target for 19 months, but the central bank has blamed high global commodity prices and a weak yen for the price pressure. It does not believe that prices in Japan have risen sustainably, driven by domestic demand and wages.
Still, the latest inflation data will reinforce investor expectations that the BOJ will soon end its monetary easing policy. "I expect the central bank to end negative interest rates and stop controlling yields as early as April next year if they see results from wage negotiations and businesses start raising prices," Yoshimasa Maruyama, chief economist at SMBC Nikko, told Reuters.
After two consecutive quarters of growth, Japan’s GDP contracted in the third quarter, due to weak consumption and business investment. Takeshi Minam, an economist at Norinchukin Research Institute, said that consumption in Japan will remain weak, making companies hesitant to raise prices.
In the first 10 months of the year, Japan's core inflation was 4%, slowing from 4.2% in the first 9 months. However, this figure has been above 4% for 7 consecutive months.
Many analysts say the policy of controlling yields has become outdated. Currently, Japan has a cap on the yield on 10-year government bonds at 1%. The 1-year reference rate is currently -0.1%.
Today's inflation data will be taken into account by the BOJ at its policy meeting next month, which will be its last meeting this year.
Ha Thu (according to Reuters)
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