Japan Inflation Hits 40-Year High As BOJ Sticks To Easy Policy TOKYO

Japan‘s inflation hit its fastest clip in 40 years in October, an outcome that further stretches the credibility of the central bank’s view that continued stimulus is needed to secure stable price growth. The national core consumer price index (CPI) rose 3.6% a year earlier, exceeding the 3.5% gain economists had hoped for and the 3.0% rise seen in September.

Consumer prices excluding fresh food climbed 3.6% in October from a year ago, the internal affairs ministry said Friday. It was the biggest jump since February 1982, when the Middle East crisis stemming from the Iran-Iraq war disrupted crude supplies and sparked a spike in energy prices. The rise in the index, which excludes volatile fresh food prices but includes oil products, confirmed that inflation has remained above the Bank of Japan's (BOJ) 2% target for the seventh straight month.

The reading outpaced a 3.5% forecast by analysts and marks the fastest price growth since 1982. Core inflation has now exceeded the Bank of Japan‘s 2% price target for seven straight months, with the yen’s historic fall amplifying the trend. But economists don't expect the BOJ to join the global trend of raising interest rates, seeing this year's acceleration in inflation as a cost-push episode that will fade as import costs stop pushing up.

Foreign supply constraints have pushed up the price of imported food, industrial commodities and manufactured parts, and so has the decline in the yen, which is in dollar terms down more than 20% this year.

“Its getting harder for the BOJ to keep saying that the current cost-push inflation is temporary,” said Mari Iwashita, chief market economist at Daiwa Securities Co. If the yen remains weak, more companies will try to pass on costs to consumers.

“I'm not changing my view that gains will start to slow soon,” said Takeshi Minami, chief economist at the Norinchukin Research Institute, noting the drop in global grain prices. “I expect inflation to peak at the end of the year and price increases to start easing in the new year.”

BOJ Governor Haruhiko Kuroda on Thursday reaffirmed a pledge to maintain monetary stimulus to achieve sustainable and stable wage growth and inflation. The central bank kept long-term interest rates at around zero and short-term rates at minus 0.1%. The economy remains fragile as it recovers from the COVID-19 downturn. Also, Japan's inflation rate remains moderate by the standards of other developed countries.