Consumer inflation in Japan's capital accelerates, keeps BOJ under pressure

People shop daily necessities at a market in Tokyo, Japan March 3, 2023.
REUTERS/Androniki Christodoulou/File Photo

Core consumer inflation in Japan's capital beat expectations in April and an index stripping away fuel costs rose at the fastest pace in four decades, highlighting the challenge the new central bank chief faces in keeping ultra-low interest rates.

The data comes hours before the Bank of Japan's policy meeting that concludes on Friday, where the board is likely to produce new inflation forecasts that could offer clues on how soon the central bank could phase out its massive stimulus.

The core consumer price index (CPI), which excludes volatile fresh food but includes fuel costs, for Tokyo rose 3.5% in April from a year earlier, government data showed on Friday, faster than a median market for a 3.2% rise and well above the BOJ's 2% target. It accelerated from a 3.2% increase in March.

The core-core CPI, which strips away both fresh food and fuel costs, rose 3.8% in April from a year earlier, pacing up from a 3.4% gain in March, the data showed.

The core-core index, which is closely watched by the BOJ in gauging trend inflation, rose at the fastest annual pace since April 1982, when it rose 4.2%.

The rise in the Tokyo's inflation, which is seen as a leading indicator of nationwide trends, may cast doubt on the BOJ's view that the recent cost-driven price rises are temporary, some analysts say.

Separate data released on Friday showed Japan's factory output rose 0.8% in March from the previous month, exceeding market forecasts for a 0.5% gain.

Manufacturers surveyed by the government expect industrial production to rise 4.1% in April and by 2.0% in May, a sign auto output is recovering from disruptions caused by supply constraints.

Japan's economy is finally recovering from the scars of the COVID-19 pandemic, though risks of a global slowdown and rising food prices hang over the outlook for exports and consumption.

With inflation already exceeding its target, markets are rife with speculation the BOJ could soon phase out ultra-loose monetary policy under new governor Kazuo Ueda.

Markets, however, widely expect the BOJ to keep monetary settings unchanged at Friday's policy meeting as it awaits more clarity on whether recent wage increases will become durable enough to keep inflation sustainably around its target.