Daily Management Review

Inflation In Japan For April Surpasses Target Set By BOJ For First Time In 7 Years


Inflation In Japan For April Surpasses Target Set By BOJ For First Time In 7 Years
For the first time in seven years, Japan's core consumer inflation surpassed the central bank's target of 2 per cent in April, but only due to growing import costs, not the robust domestic demand that the central bank has been seeking to foster.
Nonetheless, the 2.1 per cent increase in the core consumer price index (CPI) announced on Friday adds to market scepticism that the Bank of Japan (BOJ) would keep its ultra-loose monetary policy in place, especially since families are facing growing expenses without significant wage increases.
The core CPI data eliminates volatile fresh food costs but not energy prices, which have soared due to the Ukraine conflict. Costs of other commodities have also risen, affecting prices of non-fresh food, another source of inflation.
Before April, the index had not climbed so quickly since 2015, or since 2008, excepting a mid-decade period when sales tax was raised.
Despite the BOJ's efforts to raise inflation to 2.0 per cent, inflation has remained stubbornly low for years.
Analysts, however, noted that finally beating the objective was no cause for joy because the higher change was driven by the cost of imported energy and other commodities.
"The current price rises stem from higher import costs. If you look at the overall situation, this means inflation is a burden on companies and households," said Taro Saito, executive research fellow at NLI Research Institute.
"If wages rose, households could hope for higher real incomes, but they aren't rising, so households are being impacted negatively."
 In 2013, during the first year of the current governor's tenure, Haruhiko Kuroda, the BOJ set a target of 2 percent inflation. He has stated several times that the central bank will not rush to discontinue its stimulus programme because any cost-push inflation would be brief.
As a result, the central bank is maintaining monetary policy exceptionally loose, expecting inflation to remain stable at 2 per cent while wage growth remains strong. Even when other major central banks tighten policy, it takes this posture.
Since the 1990s, Japanese earnings have barely moved in relation to the cost of living, making saving rather than spending one of the most serious issues for the world's third-largest economy.
Inflation outpaced a moderate 1.0 per cent year-on-year gain in total cash earnings in March, causing real wages to shrink for the first time in three months.
The government's April inflation rate was in line with the median expectation in a Reuters survey. It was substantially higher than the 0.8 per cent annual increase reported in March, although that figure was influenced more by a significant decline in mobile phone fees, which is now being factored out of the equation.
In April, mobile phone costs reduced the overall CPI by 0.38 percentage point, compared to 1.42 percentage point in March.
According to Atsushi Takeda, head economist of Itochu Economic Research Institute, sharp increases in import costs meant money was flowing outside.
"There's no mistake that it's economically bad," he said.
Inflation may be high by Japanese standards, but it is still modest when compared to other countries, because Japanese enterprises are unable to raise prices readily while wage growth is slow. Consumer prices in the United States increased by 8.3% in the year to April.
According to a Reuters survey of 17 economists, statistics due on May 27 will show Tokyo-area consumer prices were 2.0 per cent higher in May than a year ago, indicating cost-push inflation would continue to pressurise Japanese families.