Tokyo inflation slowdown, output slide clouds BOJ's rate hike outlook
Reuters
Published Mar 28, 2024 07:42PM ET
Updated Mar 29, 2024 02:50AM ET
By Leika Kihara and Satoshi Sugiyama
TOKYO (Reuters) -Core inflation in Japan's capital slowed in March and factory output unexpectedly slid in the previous month, heightening uncertainty on how soon the Bank of Japan can raise interest rates again after exiting its radical monetary stimulus.
The slew of weak signs in the economy could prompt the central bank to go slow in its next rate hike and give investors an excuse to continue selling yen, keeping pressure on Japanese authorities to intervene in the market to prop up the currency.
"Factory output is weaker than expected," said Masato Koike, an economist at Sompo Institute Plus. "Given the weakness in production, the BOJ may find it hard to raise interest rates again soon."
Core consumer price index (CPI) in Tokyo, an early indicator of nationwide figures, rose 2.4% in March from a year earlier, matching a median market forecast and slowing slightly from a 2.5% gain in February.
A separate index that excludes the effect of both fresh food and fuel costs, viewed as a broader price trend indicator, also showed inflation slowing to 2.9% in March from 3.1% in February, data showed on Friday.
While core inflation is still above the central bank's 2% target, the slowdown underscores how price pressures in Japan are still predominantly coming from raw material costs rather than robust domestic demand.
"Cost-push inflationary pressures are weakening. We're also seeing a slowdown in service-sector inflation," said Toru Suehiro, chief economist at Daiwa Securities.
Separate data showed on Friday Japan's factory output unexpectedly fell by 0.1% in February from the previous month, against a median market forecast for a 1.4% rise.
Manufacturers surveyed by the Ministry of Economy, Trade and Industry expect output to increase 4.9% in March and rise 3.3% in April, the data showed.
The data may point to caution at the BOJ in implementing further interest rate hikes, after ending an eight-year negative interest rate policy last week.
Despite the rate hike, expectations that the BOJ will go slow in raising interest rates have pushed the yen to a 34-year low against the dollar this week, triggering verbal warnings by authorities against weakening the currency too much.
While a weak yen boosts profit for Japanese exporters, it hurts households and retailers by pushing up the cost of importing raw material and fuel.
The BOJ has said its decision to end negative rates last week was driven by signs that robust demand and the prospect of higher wages were prodding firms to keep hiking prices for both goods and services.
BOJ Governor Kazuo Ueda has said the central bank could hike rates again if inflation overshoots expectations or upside risks to the price outlook heighten significantly.
Get The News You Want
Big firms have offered bumper pay hikes in this year's annual wage negotiations, heightening the prospect that Japan will see inflation sustained around the BOJ's 2% target.
But consumption has showed signs of weakness as rising living costs hit households, casting doubt on the strength of Japan's economy.
Factory output also remains weak due to production and shipment disruption at Toyota Motor (NYSE:TM) and its small-car unit, which could weigh on the broader economy due to their huge presence in Japan's manufacturing sector.
Japan's economy expanded an annualised 0.4% in the final quarter of last year, narrowly averting a technical recession as robust capital expenditure offset weaknesses in consumption.
Written By: Reuters
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.