Japan’s key inflation gauge rose further above the Bank of Japan’s target level of 2%, a result that will likely keep speculation smoldering over possible policy adjustments at the central bank despite Governor Haruhiko Kuroda’s continued commitment to ultra-low rates.
Consumer prices excluding fresh food climbed at a faster pace of 2.2% in June from a year earlier, with energy costs amplified by a weaker yen and higher processed food prices the main contributors, according to ministry of internal affairs data released Friday.
The result matched economists’ estimates and would have been stronger without the impact of ramped-up government measures to limit gains in fuel prices.
Despite the continued price gains, the BOJ is unlikely to budge from its position as an outlier among global central banks any time soon. Even as the Federal Reserve carries out jumbo rate hikes to tackle inflation and the European Central Bank joins the global policy tightening wave with its first rate rise in over a decade, the BOJ remains unconvinced that local inflation is sustainable.
The ongoing gains above the price target pose a communications challenge for the BOJ. The central bank’s persistent easing has come under criticism as it’s helped the yen slide to a 24-year low versus the dollar, amplifying the soaring import costs of food and energy for households.
Details of the June inflation data offer some support for the BOJ’s argument that the current inflation is largely based on cost-push pressure. Energy costs remained the main upward driver, rising 16.5% from the previous year. Processed food contributed about three-quarters of a percentage point to overall inflation, helping nudge the figure up in June.
Prices excluding fresh food and energy rose 1%, for the biggest gain since February 2016.
After Thursday’s decision, Kuroda said he had “no intention at all” of raising interest rates while the economy still needed help and prices gains weren’t backed up by strong wage hikes. The BOJ doesn’t target foreign exchange levels, he said, but he added that marginal policy tweaks would fail to stop weakness in the yen.
With the central bank hunkering down on its position, the government has stepped in to help rein in the pain of soaring power and food prices.
Following this month’s election victory, Prime Minister Fumio Kishida promised more measures to limit price gains to help consumers and businesses. The government estimates existing steps, including subsidies on gasoline, are shaving 0.5 percentage point off overall consumer prices from May through September. Overall CPI increased 2.4% in June.
Finance Minister Shunichi Suzuki said on Friday that the government is monitoring the possible negative impacts of rising prices on the economy such as cutting into households’ spending power.
Kishida has also called for stronger pay increases as part of his efforts to achieve a more equitable distribution of wealth. But pay gains are failing to keep up with inflation, with the May reading showing real wages falling 1.8% from the year before.