Japan's inflation beats forecasts, end of negative rates still in sight

TOKYO: Japan's core consumer inflation slowed for a third straight month in January but beat forecasts and held at the central bank's 2 per cent target, keeping alive expectations it will end negative interest rates by April.

The 2.0 per cent increase beat median market forecasts for a 1.8 per cent rise, the internal affairs and communications ministry data showed on Tuesday (Feb 27), underscoring views waning cost-push inflation from commodity imports could ease the pain of higher living costs.

However, the steady inflation also reaffirms expectations hefty pay hikes will be offered by big firms at labour-management wage talks on Mar 13, paving the way for an end to negative interest rates as soon as March or April.

Japan's core consumer price index, which includes oil products but excludes fresh food prices, compared with economists' median estimate for a 1.8 per cent annual gain.

The slowdown was due in part to a big drop in energy costs, reflecting the base effect of last year's sharp rise and government subsidies to curb gasoline and utility bills, in a sign of waning cost-push pressure that had kept core inflation at or above the Bank of Japan's 2 per cent target since April 2022.

Going forward, the key is whether wage hikes beat inflation enough to give households purchasing power, so companies can continue to pass on costs and keep inflation durably at the BOJ's 2 per cent target, analysts say.

The so-called "core core" index that strips away both fresh food and energy prices, closely watched by the BOJ as a narrow gauge of the broader price trend, rose 3.5 per cent year-on-year in January, following a 3.7 per cent rise in December.