Japan’s inflation may have peaked, no imminent change seen to BOJ policy

Japan’s inflation may have peaked, no imminent change seen to BOJ policy

Japan’s core inflation remained above the central bank’s 2% target in June for the 15th consecutive month. However, an index that excludes the impact of energy costs showed a slowdown, indicating that the commodity-driven price pressures may have peaked. Despite this, policymakers believe that wage pressures have not yet reached a level that would require a change in the ultra-loose monetary policy.

While the data suggests that the Bank of Japan (BOJ) may upgrade its inflation forecast for this year, it also relieves pressure on the central bank to begin phasing out its massive monetary stimulus. Analysts predict that cost-push inflation is reaching its peak, and inflation is expected to slow in the coming months, allowing the BOJ to maintain its current policy.

The nationwide core consumer price index (CPI), excluding fresh food costs, rose 3.3% in June compared to the previous year, in line with market expectations. However, the index that excludes both fresh food and fuel costs, which is considered a better measure of trend inflation, increased by 4.2%, slower than the previous month. This indicates a moderation in the rapid pace of price increases driven by companies.

Services prices, an important indicator of inflation driven by higher labor costs, rose 1.6% in June compared to the previous year. This data comes ahead of the BOJ’s policy meeting, where the board will release new projections and discuss Japan’s progress towards achieving its 2% inflation target.

There is speculation in the market that the BOJ may phase out its yield curve control (YCC) policy, which has been in place due to inflation exceeding the target for over a year. However, BOJ Governor Kazuo Ueda has emphasized the need to maintain an ultra-loose policy until inflation shifts from cost-push to demand-driven and wage growth increases.

The key factor for future inflation will be whether companies continue to raise wages and pass on the costs to services prices. If this happens, services prices could exceed expectations. However, inflation excluding food and energy is expected to gradually moderate.

Under the YCC policy, the BOJ guides short-term interest rates and buys government bonds to control the 10-year bond yield. This policy aims to stimulate inflation and achieve the 2% target.

In conclusion, Japan’s core inflation remains above the target, but there are signs of a slowdown in price pressures. While the BOJ may upgrade its inflation forecast, it is unlikely to make any immediate changes to its monetary policy. The focus now is on whether wage pressures will increase and translate into higher services prices.

About News Team

Hi, I'm Alex Perez, an experienced writer with a focus on lifestyle and culture news. From food and fashion to travel and entertainment, I love exploring the latest trends and sharing my insights with readers. I also have a strong interest in world news and business, and enjoy covering breaking stories and events.

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