Japan's Inflation Stays Above The Central Bank's Forecast

In April, Japan's core consumer inflation remained well above the central bank's 2% target, and a key measure that excludes the effects of fuel set a new four-decade high, fueling anticipation of a tweak to the country's enormous stimulus this year.

The reading comes just a few days after data showed that the world's third-largest economy grew faster than projected in the first quarter, thanks to a post-COVID consumer resurgence.

According to some analysts, the robust price and growth numbers allow Bank of Japan (BOJ) Governor Kazuo Ueda to gradually phase out his predecessor's ultra-loose policies.

The nationwide core consumer price index (CPI), which excludes fresh food but includes energy products, rose 3.4 percent year on year in April, according to data released on Friday, matching the median market prediction and improving from a 3.1 percent increase in March.

The increase in April, the start of Japan's new business year, when many firms adjust their prices, shows that rising pricing pressures may maintain inflation above the BOJ's 2% target for longer than expected, according to economists.

An indicator that excludes the effects of both fresh food and gasoline - intensively monitored by the BOJ as a crucial barometer of domestic demand-driven price trends - climbed 4.1 percent year on year in April, the quickest yearly rate since 1981.

"Given stubborn food price pressures, we now expect underlying inflation to peak at 4.5 percent by mid-year," said Darren Tay, Capital Economics' Japan economist.

"However, the inflationary cycle is likely nearing its end, as producer price inflation has fallen significantly over the last three months." As a result, we anticipate that inflation will fall substantially in the second half."