Bank of Japan Inflation Target Recedes

Japan’s core consumer price growth slowed in April for a second straight month, showing little of the inflationary momentum needed to reach the central bank’s elusive 2% target.

The weakness in April inflation is particularly unwelcome for the Bank of Japan, which had hoped companies would rush to hike prices at the start of a new business year, Reuters reported.

The slowdown, which came in the wake of first-quarter data showing the economy may have reached its peak, could discourage BoJ policymakers from signaling their intention to end its ultra-easy monetary policy, analysts say.

“The broad-based moderation in price pressures in April underlines that the Bank of Japan won’t be able to tighten monetary policy anytime soon,” said Marcel Thieliant, senior Japan economist at Capital Economics. “We expect GDP growth to slow this year which suggests that capacity shortages won’t intensify any further.”

The core consumer price index, which includes oil products but excludes volatile fresh food costs, rose 0.7% in April from a year earlier, slightly less than a median market forecast for a 0.8% rise.

It followed a 0.9% gain in March, marking the second straight month of slowdown, despite recent gains in oil prices that pushed up electricity and gasoline bills.

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 rose 1.1% in April from a year earlier, the same rate of increase as March, a sign few firms took the start of a new business year as an opportunity to pass rising costs on to consumers.

The ratio of goods that saw prices rise stood at 53.9% in April, roughly unchanged from March.

While recent rises in oil costs may underpin price growth, analysts expect inflation to fall short of the BoJ’s goal in coming years given slow wage growth and weak consumption.

Japan’s economy contracted more than expected at the start of this year, suggesting growth has peaked after the best run of expansion in decades.

While analysts expect growth to rebound in the current quarter, any sign of the economy hitting a plateau could further push back market expectations of an exit from easy monetary policy.