TOKYO: Core inflation decelerated for the second consecutive month in April, dropping below the central bank’s 2 per cent target, as revealed by data on Friday. This development complicates the central bank’s decision on when to raise interest rates.
The latest figures were released shortly before the conclusion of the Bank of Japan’s two-day policy meeting, where policymakers are expected to maintain interest rates at their current level and present new inflation forecasts for the coming years up to early 2027.
The core Consumer Price Index (CPI) in Tokyo, which serves as an indicator for nationwide trends, rose by 1.6 per cent in April compared to a year earlier, marking a slowdown from the 2.4 per cent increase observed in March. This figure was lower than the market’s median forecast of a 2.2 per cent rise.
Another index, which excludes the volatile effects of fresh food and fuel prices and is seen as a broader gauge of price trends, also indicated a slowdown in inflation to 1.8 per cent in April from 2.9 per cent in March. This represents the slowest rate of increase since September 2022, when the index rose by 1.7 per cent year-on-year.
Despite core inflation still exceeding the central bank’s 2 per cent target, the deceleration underscores uncertainty about whether consumer spending and wage pressures will strengthen sufficiently to sustain price growth around this level.
The Bank of Japan has previously stated that its decision to end negative interest rates last month was driven by indications of robust demand and the expectation of rising wages, which were prompting businesses to continue raising prices for both goods and services.
The depreciation of the yen adds complexity to the Bank of Japan’s interest rate strategy. While it supports exports and contributes to inflation, it could dampen domestic consumption, potentially cooling the economy and discouraging businesses from passing on increased costs to households.— REUTERS
