TOKYO, April 26 (Reuters) – Core inflation in Tokyo accelerated in April, climbing to 2.6% year-on-year, bringing the Bank of Japan (BOJ) closer to a potential interest rate hike as sustained price pressures build. The figure, up from 2.5% in March, marks the fastest pace of core inflation in Tokyo in over three decades and exceeds economists’ forecasts of 2.4%.
The data fuels expectations that the BOJ may signal a shift in its ultra-loose monetary policy at its upcoming meeting in late April, potentially paving the way for an end to negative interest rates. While the BOJ has maintained its commitment to accommodative policy, aiming to sustainably achieve its 2% inflation target, persistent price increases - driven by rising import costs and strengthening domestic demand – are intensifying pressure on the central bank to reassess its stance. This impacts Japanese households and businesses, and also global financial markets closely watching for any change in the BOJ’s policy direction.
Core inflation, which excludes volatile fresh food prices, is a key indicator closely watched by the BOJ as it gauges underlying inflationary trends. The latest reading reflects increases in a broad range of goods and services, including energy, food, and durable consumer goods. Excluding fresh food and energy, so-called core-core inflation rose to 3.1% in April,further indicating broadening price pressures within the Japanese economy.
The BOJ has repeatedly stated its intention to maintain accommodative monetary policy until it is indeed confident that inflation is sustainably on track to reach its 2% target. Though,the accelerating pace of inflation in Tokyo,combined with recent comments from BOJ officials suggesting a willingness to consider policy adjustments,suggests that the central bank might potentially be nearing a tipping point.Analysts predict that if the national core inflation data, due next week, confirms the trend of rising prices, the BOJ could begin to signal a shift in its policy stance at its April 27-28 meeting. Potential changes could include adjustments to its yield curve control policy or a gradual increase in interest rates.
