Japan’s inflation likely to double BOJ’S 2 per cent target in January
The core consumer price index in Tokyo was seen rising 4.2 per cent in January from a year earlier
A leading indicator of Japanese consumer prices likely rose in January at more than twice the speed of the central bank’s target, hiting another fourdecade-high, a Reuters poll showed.
Inflation data in the world’s third-largest economy has received unusual atention amid market expectations of a shit in the Bank of Japan’s (BOJ) ultra-easy monetary policy.
The core consumer price index (CPI) in Tokyo was seen rising 4.2 per cent in January from a year earlier, according to the median estimate of 19 economists.
That would mark the eighth straight month of price acceleration and the fastest year-on-year increase since the 4.2 per cent rise in April 1982.
“Inflation likely stayed elevated in January since the effect of the stimulus package, which depresses energy prices, will not fully kick-in until February,” said Shinichiro Kobayashi, principal economist at Mitsubishi UFJ Research and Consulting, referring to fiscal measures to curb household inflation.
Tokyo’s core CPI, which is released three to four weeks ahead of the nationwide inflation data, showed a downwardly revised 3.9 per cent rise in December.
Earlier on Friday, the nationwide CPI data for December showed a 4.0 per cent gain in core inflation, which excludes volatile fresh food but includes energy items.
Meanwhile Japanese Prime Minister Fumio Kishida said on Sunday he would nominate a new Bank of Japan governor next month, as markets test whether the central bank will change the ultra low-rate policy of the dovish Haruhiko Kuroda.
Kishida initially told a TV Tokyo programme that he would decide on Kuroda’s replacement by considering the economic situation for April, but when pressed he acknowledged this would likely be in February, “considering parliament’s schedule.”
Kuroda, whose five-year term ends on April 8, has stuck with policies aimed at stoking price rises and growth, even with inflation at 41-year highs and double the BOJ’S target, and as central banks elsewhere have been raising interest rates.
The terms of Kuroda’s two deputies end on March 19. The three nominations must be approved by both houses of parliament.
The BOJ stuck to its ultra-easy policy on Wednesday, defying investors who have recently sought to break the bank’s cap on the 10-year government bond yield. But with even Kuroda sounding bullish about wage rises, expectations are growing that the BOJ will end its expansionist experiment this year.
Last week’s test followed the BOJ’S surprise December decision to double the target band for the yield to 0.5 per cent above or below zero.
Former BOJ board member Sayuri Shirai, an advocate of reviewing the current stimulus who is considered a candidate for deputy governor, said on Sunday the BOJ should make its government bond buying more flexible but that low interest rates are warranted.
There is also speculation about changes to a policy accord between the central bank and the government, in which the BOJ pledges to achieve its 2 per cent inflation target as early as possible.
Kishida said it was too early to comment on whether the accord needed to be altered but said there will be no change to the “basic stance” that his government and the BOJ work together “to achieve economic growth that involves structural wage hikes and reach the price-stability target stably and sustainably”.
The Bank of Japan last week crated a new weapon to defend its yield cap and extend the lifespan of its yield control policy, without having to ramp up bond buying and dry up already thinning market liquidity.
Specifically, the BOJ amended rules for an existing market operation tool, so it can pump funds extending up to 10 years in variable rates to financial institutions against collateral.
While the new tool could keep bond bears at bay, there is uncertainty on how effective it would be in keeping long-term interest rates from rising.
With inflation exceeding the BOJ’S 2 per cent target, investors have sold bonds on bets the central bank will soon dial back its massive monetary stimulus.
The BOJ has been forced to ramp up bond buying to defend its 10-year yield cap that is part of yield curve control (YCC) - a policy combining a negative short-term interest rates with a 0 per cent target for the 10-year bond with some allowance.
The BOJ raised the cap to 0.5 per cent from 0.25 per cecnt last month in a bid to iron out market distortions caused by its huge bond buying. But the move backfired as markets atacked the newly set ceiling on expectations the BOJ could raise the cap again - or abandon YCC altogether.
Defying bets of a policy tweak, the BOJ kept ultra-low interest rates and the 0.5 per cent yield cap on Wednesday. But it introduced the new tool to keep market forces from breaking YCC.
Before the rule amendment, the funds-supplying operation was used to pump short-term funds - typically of durations up to one-year - to financial institutions.