Japan’s inflation ticked down in March. Although economists say the slowdown does not indicate a reversal in trend, the reading is still far from the 2% target. The slowdown in March has introduced further uncertainty with regard to when the BOJ might achieve its target and clouded the central bank’s plans on exiting the easy monetary policies.
More into the Numbers
Japan’s core inflation, which excludes volatile fresh food prices, hit 0.9% in March compared with 1.0% in the prior month, per data from the Ministry of Internal Affairs and Communications.It was in line with a forecast by economists polled by Bloomberg. Moreover, the “core-core” measure of inflation, which excludes volatile fresh food and energy prices increased 0.5% year over year in March, in line with the previous month.
“The underlying trend hasn’t changed because inflation excluding fresh food and energy remained the same,” per a Bloomberg article citing Maiko Noguchi, a senior economist at Daiwa Securities Co. “I think that’s the measure the BOJ really cares about because the bank can’t achieve 2 percent in a stable manner if it fails to rise from the current 0.5 percent,” he added.
The International Monetary Fund also expects consumer prices in Japan to go up. In its World Economic Outlook, the IMF said it expects Japan’s inflation reading to go up to 1.1% this year and the next. Bank of Japan’s easy money policies and Prime Minister Shinzo Abe’s stimulus measures are driving economic growth in Asia’s second largest economy. Moreover, with inflation still far from the target, market pundits do not seem to be convinced about governor Haruhiko Kuroda ending the monetary stimulus anytime soon.
Global Factors at Play
The recovery in Japan’s economy has been largely driven by a revival in global growth and strong export demand. However, fears of a trade war amid increasing tensions between the United States and China coupled with a rising yen might be drags on the future of Japan’s economy.