Japan's Core Inflation Rises at Slowest Pace in 11 Months

Japan's core consumer price index (CPI), a key measure of inflation, increased at the most gradual rate in 11 months in March 2024, indicating a potential easing of inflationary pressures in the country. The weighted median inflation rate, which is closely watched as an indicator of whether price rises are broadening, increased by 1.3% year-on-year in March, down from a 1.4% rise in February, according to data from the Bank of Japan.

The trimmed mean reading of the core CPI fell to 2.2% from 2.3% in February, further suggesting that price pressures have diminished. This data provides signs of a potential easing of inflationary trends in Japan.

Why this matters: The slowing trend inflation measure could impact the Bank of Japan's policy outlook. Governor Kazuo Ueda stated that the central bank will look at moves in trend inflation to achieve its price goal and take a data-dependent approach in setting policy.

The Bank of Japan has maintained an ultra-loose monetary policy since 2013 to stimulate the economy and fuel inflation, which has led to a depreciation of the yen against other major currencies. However, the central bank's policy of holding down rates has widened the differential with other central banks that have opted to raise interest rates sharply to fight high inflation, further weakening the yen.

Global shares rose on Tuesday, driven by a recovery on Wall Street, where investor focus is on earnings reports from U.S. megacaps. Meanwhile, the Japanese yen hit a new 34-year low against the dollar, prompting a warning from Japanese officials.

The latest inflation data from Japan comes as the country continues to grapple with the economic impact of the COVID-19 pandemic and global supply chain disruptions. The potential easing of inflationary pressures may provide some relief to consumers and businesses, but the Bank of Japan will likely remain cautious in its policy approach as it seeks to achieve its price stability goal.

Key Takeaways

• Japan's core CPI rose at slowest rate in 11 months in March 2024.
• Weighted median inflation rate and trimmed mean CPI fell, suggesting easing inflation.
• Slowing trend inflation could impact BOJ's policy outlook, as it aims for price goal.
• BOJ's ultra-loose policy has weakened yen against other currencies.
• Easing inflation may provide relief, but BOJ likely to remain cautious in policy approach.