Economists see Japan's inflation hitting at least 2.1% in April

JAPAN'S key inflation gauge is more likely to top 2 per cent in April following stronger-than-expected price growth in the capital, an outcome that would make it trickier for the Bank of Japan (BOJ) to explain its need to continue with stimulus.

Consumer prices excluding fresh food probably rose by at least 2.1 per cent last month, according to economists at BNP Paribas, Citigroup and Dai-Ichi Life Research Institute, after factoring in a government report on Friday (May 6) showing core inflation in Tokyo hit 1.9 per cent in April. The nationwide data is due on May 20.

Economists largely agree with the central bank's view that inflation above 2 per cent in Japan will be unsustainable without wage gains and a greater acceptance of higher prices by companies and consumers. But they also say the longer higher inflation lasts and the weaker the yen gets, the greater the risk of the BOJ having to make some kind of policy adjustment as public discontent grows.

"The consumer price index could stay above 2 per cent this year and go even higher depending on whether businesses pass on more of their rising costs," Yoshiki Shinke, an economist at Dai-Ichi Life Research Institute, said in a report.

BOJ Governor Haruhiko Kuroda made it clear last week that he has no intention of tightening policy for now as the cost-push nature of the current inflation will drag on the pandemic recovery, making support for the economy his bigger priority.

Kiichi Murashima and Katsuhiko Aiba, economists at Citigroup, said in a note that the policy implications of hitting their 2.1 per cent price forecast were limited given Kuroda's repeated remarks that any policy change would be premature.

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign UpVIEW ALL

Still, with a wave of global central banks racing to raise interest rates to tackle hotter prices and a weaker yen amplifying the pain of higher prices, pressure may build on Kuroda to do something before his term finishes next April.

The yen fell below 130 against the dollar last week to hit a fresh 20-year low after the BOJ doubled down on keeping its rates at rock-bottom levels.

BNP's Ryutaro Kono and Azusa Kato expect that if the yen weakens beyond 140 per dollar, that would push inflation close to 3 per cent and weigh more on households.

"We should be mindful of the risk of the BOJ encountering difficulties in continuing with its policy if sentiment against the weak yen grows as consumers suffer from the rising prices of imported goods," the BNP economists wrote in the report. BLOOMBERG