© Reuters. FILE PHOTO: People shop daily necessities at a market in Tokyo, Japan March 3, 2023. REUTERS/Androniki Christodoulou/File Photo
TOKYO (Reuters) – Japan’s inflation is expected to have cooled again in January and undershoot the central bank’s 2% target for the first time in nearly two years, a Reuters poll showed on Thursday.
The forecast slowdown in inflation, and data last week showing the economy unexpectedly slipped into a recession at the end of last year, complicates the Bank of Japan’s plans to end negative interest rates in coming months.
The nationwide core consumer price index (CPI), which excludes fresh foods but includes energy items, was seen rising 1.8% in January from a year ago, slowing for a third straight month, the median forecast of 17 economists showed.
That would mark the lowest inflation rate since the 0.8% pace in March 2022, which also was the last time inflation was below the central bank’s target.
“Japan’s inflation is settling down,” said Norinchukin Research Institute chief economist Takeshi Minami, attributing it to continued deceleration in Tokyo’s inflation rate. Price data in the capital is considered a leading indicator of nationwide trends.
BOJ officials have said the current inflation slowdown is due to the waning effects of cost-push factors, and the central bank has made it clear it will continue its efforts to meet its 2% inflation target on a sustainable basis underpinned by wages growth.
BOJ Governor Kazuo Ueda on Thursday said Japan’s inflation was accelerating as a trend as a tight labour market pushes up wages, reiterating the bank’s conviction that conditions for ending negative interest rates were falling into place.
More than 80% of economists in another Reuters poll expected the BOJ to end its negative interest rate policy in April, predicting higher-than-2023 wage hikes during spring labour negotiations.
Elsewhere in the poll, economists expected factory output data will likely show a 7.3% month-on-month decrease in January, the biggest contraction since May 2022, hurt by production halts due to the New Year’s Day Noto peninsula earthquake and Toyota (NYSE:) group automakers’ safety scandal.
Retail sales are expected to extend a growth streak with forecast 2.3% rise from the year before. Unemployment rate and job availability are seen unchanged.
The government will release the CPI data at 8:30 a.m. on Feb. 27 (2330 GMT, Feb. 26). Industrial output and retail sales data are due at 8:50 a.m. on Feb. 29 (2350 GMT, Feb. 28).
