Inflation in Japan accelerated in January, with inflation in households further putting pressure on the market as prices, excluding fresh food, rose 3.2%.
The rate is the highest since June 2023, which has heightened speculation about the timing of the next rate rise in the Bank of Japan as it retreats from years of active monetary easing to boost the dying economy.
The Home Office said the core consumer price index (CPI) in January exceeded market expectations of a 3.1% rise, accelerating from 3.0% in December.
Overall, inflation, including volatile fresh food, rose 4.0% (the highest inflation rate in the G7, accelerating from 3.6% in December and 2.9% in November.
Cabbage prices were almost tripled in January, and local media called it a “cabbage shock” after record summer heat and heavy rains last year destroyed crops.
Friday’s data showed that the price of rice also soared by more than 70%, while electricity bills rose by 18%.
Last week, the government said it would release one-fifth of emergency rice stocks after a poor harvest and a panic purchase of “giant” warnings, driving the expenses of staple foods.
Japan had previously captured its reserves in disasters, but this was the first time since the inventories were created in 1995, and supply chain issues sparked the action.
– yen ‘slugfest’ –
Bank of Japan raised interest rates again last month, the first time in 17 years in March 2024.
After years of hard work to cope with the “loss decades” of Japan’s economic stagnation and static or decline, it is gradually normalizing monetary policy.
Stephen Innes of SPI Asset Management said that “Japan’s CPI has all the efforts to knock out the match than expected” and could increase the value of the yen, while traders made a “significant shift” in central bank policy expectations.
“But it turned into a clumsy man as senior officials stepped in to cool down for the yen rally,” he said.
Finance Minister Katsunobu Kato warned on Friday that higher bond yields could put pressure on government spending because it means more expenses for Japan’s huge government debt.
His comment reminds traders: “The shed does not operate in isolation – it still comes down to the Ministry of Finance, which has its own concerns.”
“Most economists expect the next Boj rate to drop in the summer, but the market is not entirely convinced.”
