Japan's Inflation Stays Significantly Below the BoJ's Target

Forex News

Core consumer price index in Japan slowed in April, and remained significantly below the Bank of Japan goal of 2%. Government data showed that core inflation which excludes fresh food prices rose by just 0.7% in the year to April, below the 0.9% pace seen in March and forecasts for a smaller deceleration to 0.8%. It marked the second straight month of slowdown, despite recent gains in oil prices that pushed up electricity and gasoline bills. On a monthly basis, the headline consumer price index fell by 0.4%, and the core consumer price index decreased by 0.1%.

The pace of increase in the core-core CPI, an index closely watched by the BOJ that strips away the impact of fresh food and energy costs, slowed to 0.4% from 0.5% in March. Processed food prices increased by 1.1% yoy in April.

Last month, the BoJ said it will persist with its quantitative and qualitative easing (QQE) with yield curve control program, buying Japanese government bonds (JGBs) so that 10-year yields are anchored at around 0%, for as long as necessary until inflation stays above its 2% inflation target in a stable manner.

The yen was little-changed after the inflation figure was announced. Economists expect inflation to rebound moderately during the second half of the year, thanks to higher energy prices and modestly rising wages. The output gap, a broad measure of supply and demand, points to rising capacity shortages that should support capital investment.