As projected, Japan’s core CPI (Consumer Price Index) inflation showed a decrease in November, primarily influenced by a decline in food prices. This development raises uncertainties regarding the timeline for the Bank of Japan to consider tightening its ultra-loose monetary policy.
According to data from the Statistics Bureau on Friday, the core CPI inflation, excluding the volatile fresh food prices, increased by 2.5% year-on-year. This figure aligned with analysts’ predictions and marked a deceleration from the previous month’s reading of 2.9%.
The year-on-year reading represented the slowest pace since August 2022, and there was no month-on-month growth in core inflation. Despite this, core inflation continued to surpass the Bank of Japan’s annual 2% target. However, the question of whether persistent inflationary pressures would prompt the central bank to consider an early policy tightening remained uncertain. The Bank of Japan had provided limited signals on a potential policy pivot during its last meeting of 2023.
The core reading, which excludes both fresh food and fuel prices and is closely monitored by the Bank of Japan, showed a year-on-year slowdown to 3.8% from the previous month’s 4%, signaling an easing trend in underlying inflation.
In November, headline CPI inflation expanded by 2.8% year-on-year, down from the 3.3% recorded in the prior month. A decline in food and energy prices on a month-on-month basis played a significant role in contributing to the subdued inflation reading.
The inflation data emerges against the backdrop of a moderation in the Japanese economy, marked by a slowdown in both consumer and capital spending over the past few months, influenced by challenges from global markets.
Earlier this week, data revealed that Japan’s exports experienced a contraction for the first time in three months, primarily impacted by a deceleration in China. Concurrently, manufacturing activity in the country continued to remain in a contractionary phase.
Japan’s economy contracted more than anticipated in the third quarter, providing added incentive for the Bank of Japan (BOJ) to maintain its accommodative policy in the short term. While there are expectations that the central bank will eventually shift away from its ultra-dovish stance in 2024, the precise timing of such a pivot remains uncertain, and BOJ officials have not provided explicit details on the matter.
Recently, the BOJ indicated that Japanese inflation is likely to dip slightly in the near term but is anticipated to remain persistent in fiscal 2024, surpassing its 2% annual target for the year. The bank emphasized the need for further evidence of inflation reaching the 2% threshold before contemplating an end to its ultra-dovish policies.
Despite the economic developments, the Japanese yen and 10-year Japanese bond yields displayed minimal reaction to Friday’s reading.
Source: Investing.com
By. Pham Thanh Bien
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