Japan’s inflation beats forecasts, end of negative rates still in sight By Reuters

By Tetsushi Kajimoto and Takahiko Wada

TOKYO (Reuters) – Japan’s core consumer inflation slowed for a third straight month in January but beat forecasts and held at the central bank’s 2% target, keeping alive expectations it will end negative interest rates by April.

The 2.0% increase beat median market forecasts for a 1.8% rise, the internal affairs and communications ministry data showed on Tuesday, 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 March 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% 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% 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% 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% year-on-year in January, following a 3.7% rise in December.