Japanese inflation picks up as BOJ pivot bets grow

TOKYO : Japan’s core consumer price growth picked up slightly in October, after easing the previous month, reinforcing investors’ views that stubborn inflation may push the Bank of Japan (BOJ) to roll back monetary stimulus before long.

The nationwide core consumer price index (CPI), which excludes volatile fresh food costs, rose 2.9 per cent year-on-year in October, government data showed on Friday, against 3.0 per cent expected by economists in a Reuters poll.

Core inflation had slowed to 2.8 per cent in September from 3.1 per cent in August, the first time it was below 3 per cent since August 2022.

The rate of inflation has hovered above the central bank’s 2 per cent inflation target for 19 consecutive months, but the BOJ has insisted the cost pressures are largely driven by higher global commodity prices and the weaker yen, not a sign of sustainable price gains led by stronger domestic demand and wage growth.

The narrower gauge of inflation, the so-called core-core index, which strips away fresh food and fuel costs, rose 4.0 per cent in October from a year earlier, the data showed, slowing from a 4.2 per cent gain in September.

Many analysts see the yield control policy as becoming obsolete as the central bank has made the 10-year yield target more and more flexible, sending the JGB yield closer to 1 per cent.

With inflationary pressures appearing to be more stubborn than expected, speculation is growing that the BOJ may soon have to ditch its negative interest rate policy as well as yield curve control, which sets a 0 per cent cap for the 10-year bond yield.

However, the BOJ has brushed aside such speculation, saying that the current global cost-push inflation is not sustainable. It says healthy wage increases are needed to spur domestic demand and prices internally.

The latest consumer inflation data is among indicators the BOJ will eye at its two-day policy meeting ending on Dec. 19, its last scheduled review this year.

Japanese firms, too, are closely watching inflation data as the government is pressing them to raise wages to help employees deal with the higher cost of living.