Japan's core consumer inflation slowed for the third month in a row in January, but it remained at the central bank's 2% target, fueling hopes that negative interest rates will be eliminated by April. The 2.0 percent increase exceeded median market expectations of a 1.8 percent increase, according to internal affairs and communications ministry data released on Tuesday, underscoring views that waning cost-push inflation from commodity imports could alleviate the pain of rising living costs.
However, the steady inflation confirms expectations that big firms will offer substantial pay increases at labor-management wage talks on March 13, paving the way for an end to negative interest rates as early 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, analysts say the key question is whether wage increases beat inflation enough to give households purchasing power, allowing companies to continue passing on costs while keeping inflation at the BOJ's 2% target.
The so-called "core core" index, which excludes fresh food and energy prices and is closely monitored by the BOJ as a narrow gauge of the broader price trend, rose 3.5% year on year in January, following a 3.7% increase in December.
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