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Japan's inflation rate has fallen again -- to 0%

Photo by Mark Kolbe/Getty Images

Japanese consumer price inflation (CPI) continued to decline in January, hitting 0%, increasing the likelihood that the Bank of Japan (BOJ) could add to its massive monetary stimulus program, including lowering interest rates further into negative territory.

From a year earlier core inflation, that which excludes fresh food, came in flat, in line with expectations, but below the 0.1% pace seen in December.

The Tokyo core inflation figure for February, released one month ahead of the national figure, fell by 0.1% from a year earlier, up slightly on the 0.2% pace seen previously.

The nation’s so-called core-core inflation rate, excluding food and energy prices, which is more in line with measures used in other nations, increased by 0.7%, down from 0.8% seen previously.

Like the core figure, headline inflation also came in flat, dropping from the 0.2% increase registered in December. It marked the lowest annual figure since September 2015.

Continued weakness in CPI, in unison with other weak data including negative economic growth, may bolster the case for the Bank of Japan to add to monetary policy stimulus.

Speaking earlier this week, BOJ governor Haruhiko Kuroda told Japanese lawmakers that it would be willing to contemplate further easing, including taking interest rates further into negative territory, should financial market movements intensifying the “deflationary mindset” of investors.

In January the bank stunned financial markets, adopting a negative interest rate policy akin to those already implemented in the Eurozone and Switzerland. According to the bank, the policy was implemented to lower long-term borrowing costs and encourage firms to lend money to the private sector rather than park excess reserves at the BOJ.

The USD/JPY is currently trading at 112.95, barely unchanged from the levels it was sitting at prior to the data release.

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