- Both headline and core CPI in Japan sit the highest level since March 2015
- Despite a lift in inflationary pressures, core CPI still remains less than half the Bank of Japan’s 2% annual target
- Most of the increase in January reflected higher energy prices
Inflationary pressures appear to be building around the world, including in Japan.
According to data released by the Japanese government today, consumer price inflation (CPI) jumped to an annual rate of 1.4% in January, above the 1% gain recorded in the year to December and the fastest increase since March 2015.
That was when an a higher consumption tax was still filtering through the Japanese economy.
Excluding fresh food prices, core CPI rose at an annual rate of 0.9%, unchanged from December and above the 0.8% increase expected.
It too sits at the equal-highest level since March 2015, and well above the 0.5% annual decline reported just over a year ago.
The core inflation figure is of more importance to Japanese monetary policy settings.
The Bank of Japan’s (BoJ) annual target is 2%, a level it is striving to achieve through ultra-loose monetary policy settings.
When it met in January, the BoJ said it would continue to buy Japanese government bonds at an annual pace of around 80 trillion yen, adding it will “continue expanding the monetary base until the year-on-year rate of increase in the observed CPI exceeds 2% and stays above the target in a stable manner”.
While progress has been made to achieving this target, January’s result suggests the BoJ is still a long way off altering its quantitative and qualitative easing with yield curve control program anytime soon.
Indicating that much of the headline increase in inflation was driven by higher fuel prices, CPI ex fresh food and energy prices grew by just 0.4% over the year, up from 0.3% in December.
The Japanese yen has weakened fractionally following the release of the report, trading up 0.07% at 106.82 against the US dollar.
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