Japan’s inflation stays above BOJ goal, key index hits four-decade high

People shop at a market in Tokyo, Japan March 3, 2023. REUTERS/Androniki Christodoulou/File photo

TOKYO  -Japan’s consumer inflation held steady above the central bank’s target in March and an index excluding fuel costs rose at the fastest annual pace in four decades, data showed, indicating broadening price pressure in the world’s third-largest economy.

The data may keep alive market expectations that the Bank of Japan (BOJ) could phase out later this year a massive stimulus program that has drawn public criticism for distorting bond markets and crushing financial institutions’ margins.

The core consumer price index (CPI), which excludes volatile fresh food, but includes energy costs, rose 3.1 percent in March from a year earlier, government data showed on Friday, matching a median market forecast.

It followed February’s increase of 3.1 percent, which was a sharp slowdown from January’s 41-year high of 4.2 percent, due largely to the effect of government subsidies to curb utility bills for homes.

An index stripping out the effect of both fresh food and energy, which is closely watched by the BOJ as a better gauge of underlying price trends, rose 3.8 percent in March from February’s 3.5 percent and accelerated for the 10th straight month.

The year-on-year rise in the so-called “core core” index was the fastest since December 1981, when Japan was experiencing an asset-inflated bubble economy.

Persistent rises in global commodity prices have prodded many Japanese companies, long reluctant to hike prices, to finally pass on their higher costs to consumers, pushing up consumer inflation to well above the BOJ’s 2 percent target.

BOJ officials, including new governor Kazuo Ueda, have vowed to keep monetary policy ultra-loose until there is more evidence that the rise in inflation has become sustainable and driven by strong demand rather than supply pressures.

At Ueda’s first policy-setting meeting next week, the central bank is widely expected to make no major changes to its bond yield control policy and dovish guidance on the outlook for interest rates, say sources familiar with its thinking.

Markets are focusing on the BOJ’s quarterly outlook report due after the meeting, which will include inflation forecasts extending through fiscal 2025.