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The Sun
5 hours ago
- Business
- The Sun
Japan May inflation at two-year high
TOKYO: Japan's core inflation hit a more than two-year high in May and exceeded the central bank's 2% target for well over three years, keeping it under pressure to resume interest rate hikes despite economic headwinds from US tariffs. The data underscores the challenge the Bank of Japan (BOJ) faces in juggling pressure from sticky food inflation and risks to the fragile economy from uncertainty over US President Donald Trump's trade policy. The core consumer price index (CPI), which excludes volatile fresh food costs, rose 3.7% in May from a year earlier, data showed yesterday – exceeding market forecasts for a 3.6% gain and accelerating from a 3.5% increase in April. It was the fastest annual pace since the 4.2% hit in January 2023. The increase was driven by stubbornly high prices of food, excluding volatile fresh items like vegetables, with Japan's staple rice seeing prices double in May from year-before levels. Rice balls cost nearly 20% more than year-before levels, while a bar of chocolate saw prices rise 27%, the data showed. While slower than the 5.3% increase in goods prices, service-sector inflation accelerated to 1.4% in May from 1.3% in April in a sign firms were steadily passing on labour costs. 'Given heightened uncertainty over US tariff policy, the BOJ is taking a wait-and-see approach to scrutinise developments in bilateral trade talks,'said Ryosuke Katagi, market economist at Mizuho Securities. 'But today's data shows anew that domestic inflation is heightening particularly that for goods. When looking just at price moves, conditions for additional rate hikes will likely stay in place throughout 2025,' he said. A separate index that strips away the effects of both volatile fresh food and fuel costs rose 3.3% in May from a year earlier after a 3% rise in April, the data showed. The rise in the index, which is closely watched by the BOJ as a better indicator of demand-driven price moves, was the fastest since January 2024 when it increased 3.5%. Food prices, excluding those of volatile fresh food, rose 7.7% in May from a year earlier, faster than the 7% gain in April, reflecting the pain households are feeling from rising living costs. BOJ policymakers expect such cost-push pressures to moderate later this year and, coupled with expected rises in wages, underpin consumption and keep Japan on track to durably achieve their 2% inflation target backed by solid domestic demand. Analysts polled by Reuters expect core inflation in Tokyo, considered a leading indicator of nationwide trends, to slow to 3.3% in June from 3.6% in May. But some analysts disagree. 'Inflation is overshooting expectations. The rise in food costs is particularly big and re-accelerating this year,' said Yoshiki Shinke, an economist at Dai-ichi Life Research Institute, adding that firms seem keen to raise prices further. 'Core consumer inflation will likely slow below 3% in August and below 2% early 2026. But the pace of slowdown could be more moderate than we expect,' he said. The BOJ ended a massive stimulus programme last year and in January raised short-term rates to 0.5% on the view Japan was on the cusp of durably meeting its 2% inflation target. While the central bank has signalled readiness to raise rates further, the repercussions from higher US tariffs forced it to cut its growth forecasts and complicated decisions around the timing of the next rate increase. Minutes of the BOJ's April 30-May 1 meeting showed the board divided on the future inflation path with some members warning that inflation could overshoot the BOJ's projections. Underscoring its attention to inflationary pressures, a BOJ research paper said hiking rates only gradually as raw material costs rise could heighten the risk of an upward spiral in wages and consumer prices. A slight majority of economists in a Reuters poll expected the BOJ's next 25-basis-point increase to come in early 2026. – Reuters
Zawya
12 hours ago
- Business
- Zawya
Japan's core inflation hits 2-year high, keeps rate-hike bets alive
TOKYO - Japan's core inflation hit a more than two-year high in May and exceeded the central bank's 2% target for well over three years, keeping it under pressure to resume interest rate hikes despite economic headwinds from U.S. tariffs. The data underscores the challenge the Bank of Japan faces in juggling pressure from sticky food inflation and risks to the fragile economy from uncertainty over President Donald Trump's trade policy. The core consumer price index (CPI), which excludes volatile fresh food costs, rose 3.7% in May from a year earlier, data showed on Friday, exceeding market forecasts for a 3.6% gain and accelerating from a 3.5% increase in April. It was the fastest annual pace since the 4.2% hit in January 2023. The increase was driven by stubbornly high prices of food, excluding volatile fresh items like vegetables, with Japan's staple rice seeing prices double in May from year-before levels. Rice balls cost nearly 20% more than year-before levels, while a bar of chocolate saw prices rise 27%, the data showed. While slower than the 5.3% increase in goods prices, service-sector inflation accelerated to 1.4% in May from 1.3% in April in a sign firms were steadily passing on labour costs. "Given heightened uncertainty over U.S. tariff policy, the BOJ is taking a wait-and-see approach to scrutinise developments in bilateral trade talks," said Ryosuke Katagi, market economist at Mizuho Securities. "But today's data shows anew that domestic inflation is heightening particularly that for goods. When looking just at price moves, conditions for additional rate hikes will likely stay in place throughout 2025," he said. A separate index that strips away the effects of both volatile fresh food and fuel costs rose 3.3% in May from a year earlier after a 3.0% rise in April, the data showed. The rise in the index, which is closely watched by the BOJ as a better indicator of demand-driven price moves, was the fastest since January 2024 when it increased 3.5%. Food prices, excluding those of volatile fresh food, rose 7.7% in May from a year earlier, faster than the 7.0% gain in April, reflecting the pain households are feeling from rising living costs. BOJ policymakers expect such cost-push pressures to moderate later this year and, coupled with expected rises in wages, underpin consumption and keep Japan on track to durably achieve their 2% inflation target backed by solid domestic demand. Analysts polled by Reuters expect core inflation in Tokyo, considered a leading indicator of nationwide trends, to slow to 3.3% in June from 3.6% in May. But some analysts are less convinced. "Inflation is overshooting expectations. The rise in food costs is particularly big and re-accelerating this year," said Yoshiki Shinke, an economist at Dai-ichi Life Research Institute, adding that firms seem keen to raise prices further. "Core consumer inflation will likely slow below 3% in August and below 2% early 2026. But the pace of slowdown could be more moderate than we expect," he said. The BOJ ended a massive stimulus programme last year and in January raised short-term rates to 0.5% on the view Japan was on the cusp of durably meeting its 2% inflation target. While the central bank has signalled readiness to raise rates further, the repercussions from higher U.S. tariffs forced it to cut its growth forecasts and complicated decisions around the timing of the next rate increase. Minutes of the BOJ's April 30-May 1 meeting showed the board divided on the future inflation path with some members warning that inflation could overshoot the BOJ's projections. Underscoring its attention to inflationary pressures, a BOJ research paper said hiking rates only gradually as raw material costs rise could heighten the risk of an upward spiral in wages and consumer prices. A slight majority of economists in a Reuters poll expected the BOJ's next 25-basis-point increase to come in early 2026. (Reporting by Leika Kihara; Editing by Sam Holmes)
New Straits Times
14 hours ago
- Business
- New Straits Times
Japan's core inflation hits two-year high, keeps rate-hike bets alive
TOKYO: Japan's core inflation hit a more than two-year high in May and exceeded the central bank's two per cent target for well over three years, keeping it under pressure to resume interest rate hikes despite economic headwinds from US tariffs. The data underscores the challenge the Bank of Japan faces in juggling pressure from sticky food inflation and risks to the fragile economy from uncertainty over President Donald Trump's trade policy. The core consumer price index (CPI), which excludes volatile fresh food costs, rose 3.7 per cent in May from a year earlier, data showed on Friday, exceeding market forecasts for a 3.6 per cent gain and accelerating from a 3.5 per cent increase in April. The rise, which was the fastest annual pace since the 4.2 per cent hit in January 2023, was driven largely by stubbornly high prices of food - particularly those of Japan's staple rice that saw prices double in May from year-before levels. While slower than the 5.3 per cent increase in goods prices, service-sector inflation accelerated to 1.4 per cent in May from 1.3 per cent in April in a sign firms were steadily passing on labour costs. "Given heightened uncertainty over US tariff policy, the BOJ is taking a wait-and-see approach to scrutinise developments in bilateral trade talks," said Ryosuke Katagi, market economist at Mizuho Securities. "But today's data shows anew that domestic inflation is heightening particularly that for goods. When looking just at price moves, conditions for additional rate hikes will likely stay in place throughout 2025," he said. A separate index that strips away the effects of both volatile fresh food and fuel costs rose 3.3 per cent in May from a year earlier after a 3.0 per cent rise in April, the data showed. The rise in the index, which is closely watched by the BOJ as a better indicator of demand-driven price moves, was the fastest since January 2024 when it increased 3.5 per cent. Food prices, excluding those of volatile fresh food, rose 7.7 per cent in May from a year earlier, faster than the 7.0 per cent gain in April, reflecting the pain households are feeling from rising living costs. BOJ policymakers expect such cost-push pressures to moderate later this year and, coupled with expected rises in wages, underpin consumption and keep Japan on track to durably achieve their 2 per cent inflation target backed by solid domestic demand. Takeshi Minami, chief economist at Norinchukin Research Institute, expects inflation to slow in the latter half of this year and fall below 2 per cent early 2026 as food price rises moderate. Government subsidies to curb gasoline costs will also likely mitigate upward price pressure from any spike in oil costs caused by the escalating Middle East conflict, he added. "The BOJ will enter a period where it weighs the hit to exports from Trump tariffs and the impact intensifying domestic labour shortages could have on wages," Minami said. The BOJ ended a massive stimulus programme last year and in January raised short-term rates to 0.5 per cent on the view Japan was on the cusp of durably meeting its 2 per cent inflation target. While the central bank has signalled readiness to raise rates further, the repercussions from higher US tariffs forced it to cut its growth forecasts and complicated decisions around the timing of the next rate increase. Minutes of the BOJ's April 30-May 1 meeting showed the board divided on the future inflation path. While some warned that cheap Chinese imports could push down prices, others said inflation could overshoot the BOJ's projections as firms have become more willing to raise prices and wages. A slight majority of economists in a Reuters poll expected the BOJ's next 25-basis-point increase to come in early 2026.
CNA
2 days ago
- Business
- CNA
BOJ's inflation warning leaves room for another rate hike this year
TOKYO: The Bank of Japan may take a long pause before raising interest rates again, but it has still left scope for action this year by signalling caution over broadening price pressures that could sow the seeds of too-high inflation. While investor focus at this week's BOJ policy meeting centred on its dovish decision to slow the pace of its bond stimulus withdrawal, the bank provided plenty of arguments for why it should persist with rate hikes. Governor Kazuo Ueda said on Tuesday the BOJ's near-term focus was on downside risks to Japan's economy with the hit from US tariffs seen intensifying in the second half of this year, suggesting the bank was in no rush to resume rate hikes. But he said there were not just downside but upside risks to prices, adding the BOJ should not rule out the chance of rising food prices leading to sustained, broader-based inflation. "Coupled with already rising food prices, oil price moves caused by tensions in Iran and Israel, if they persist, could risk affecting inflation expectations and underlying inflation," he told reporters after the BOJ's widely-expected decision to keep rates steady. "So we must scrutinise developments carefully." Those remarks came amid an escalating Middle East conflict that has caused crude oil prices to surge. Mizuho Securities expects the recent rise in fuel costs to push up core consumer inflation by up to 0.2 per cent point around autumn this year, and possibly heighten inflation expectations of households faced with higher gasoline and utility bills. That would add to already rising rice and food prices, which lifted headline inflation to 3.6 per cent in April - well above the BOJ's 2 per cent target. Such price pressures might lead to an upgrade in the BOJ's price forecasts at its next quarterly outlook due on Jul 31, when the board takes a fresh look at whether cost-push pressures are moderating as they predict. "We expect the BOJ to revise up its price forecasts at the July outlook report, laying the path for a rate hike in October," said JP Morgan Securities economist Ayako Fujita. In current forecasts made on May 1, the BOJ expects core consumer inflation to hit 2.2 per cent in the year ending in March 2026 before slowing to 1.7 per cent the following year. The estimates are based on the assumption that crude oil prices are broadly flat throughout the projection period and the effects of rising food prices wane. MIXED READINGS US trade policy uncertainty has complicated the BOJ's efforts to wean the economy off a decade-long stimulus, with initial plans to hike in July dashed by President Donald Trump's April tariff announcement. Some BOJ watchers saw Ueda's comments this week as surprisingly dovish and ruling out the chance of near-term rate hikes. Former BOJ board member Takahide Kiuchi said even if the BOJ resumes rate hikes, the next one will likely be around year-end or early next year, which would give the bank time to grasp the economic impact of Trump's tariffs. Even so, the BOJ has recently escalated its warning about the second-round effects of supply shocks as it grows wary of being caught behind the curve in addressing the risk of too-high inflation. In the May 1 outlook report, the BOJ said rising rice and food prices could affect underlying inflation by changing public perceptions on future price moves. In the strongest warning to date on price pressures, Ueda said last month that Japan was experiencing "another round of supply shocks" in the form of food price rises that could demand a policy response. "Given that underlying inflation is closer to 2 per cent than a few years ago, we need to be careful about how food price inflation will impact underlying inflation," he said, pointing to the danger of looking through the impact of raw material prices. The BOJ is paying particular attention to how rising food prices could affect households' inflation expectations. The doubling of the price of rice, a Japanese staple, has drawn intense public attention. "Price hikes are no longer scaring away consumers, which may be a sign households' inflation expectations are already heightening," a source familiar with the BOJ's thinking. "If headline inflation stays around 4 per cent, some in the BOJ might shift more in favour of rate hikes," another source said. For now, the BOJ will likely stick to communication that leaves itself room to stand pat for as long as needed - or hike swiftly if uncertainty over US trade policy clears up. That will likely keep market players guessing on the next rate-hike timing. Analysts at ING expect the BOJ to hold off raising rates until early 2026 if Japan's tariff negotiations with the US drag on longer than expected. But they add the timing could be pushed forward if underlying inflationary pressures build. "The earlier price gains of rice and food have been passed on to services prices and other manufactured prices. We also see a gradual pick-up in rents over the next few months," ING said.
CNA
2 days ago
- Business
- CNA
Analysis:BOJ's inflation warning leaves room for another rate hike this year
TOKYO :The Bank of Japan may take a long pause before raising interest rates again, but it has still left scope for action this year by signaling caution over broadening price pressures that could sow the seeds of too-high inflation. While investor focus at this week's BOJ policy meeting centered on its dovish decision to slow the pace of its bond stimulus withdrawal, the bank provided plenty of arguments for why it should persist with rate hikes. Governor Kazuo Ueda said on Tuesday the BOJ's near-term focus was on downside risks to Japan's economy with the hit from U.S. tariffs seen intensifying in the second half of this year, suggesting the bank was in no rush to resume rate hikes. But he said there were not just downside but upside risks to prices, adding the BOJ should not rule out the chance of rising food prices leading to sustained, broader-based inflation. "Coupled with already rising food prices, oil price moves caused by tensions in Iran and Israel, if they persist, could risk affecting inflation expectations and underlying inflation," he told reporters after the BOJ's widely-expected decision to keep rates steady. "So we must scrutinise developments carefully." Those remarks came amid an escalating Middle East conflict that has caused crude oil prices to surge. Mizuho Securities expects the recent rise in fuel costs to push up core consumer inflation by up to 0.2 per cent point around autumn this year, and possibly heighten inflation expectations of households faced with higher gasoline and utility bills. That would add to already rising rice and food prices, which lifted headline inflation to 3.6 per cent in April - well above the BOJ's 2 per cent target. Such price pressures might lead to an upgrade in the BOJ's price forecasts at its next quarterly outlook due on July 31, when the board takes a fresh look at whether cost-push pressures are moderating as they predict. "We expect the BOJ to revise up its price forecasts at the July outlook report, laying the path for a rate hike in October," said JP Morgan Securities economist Ayako Fujita. In current forecasts made on May 1, the BOJ expects core consumer inflation to hit 2.2 per cent in the year ending in March 2026 before slowing to 1.7 per cent the following year. The estimates are based on the assumption that crude oil prices are broadly flat throughout the projection period and the effects of rising food prices wane. MIXED READINGS U.S. trade policy uncertainty has complicated the BOJ's efforts to wean the economy off a decade-long stimulus, with initial plans to hike in July dashed by President Donald Trump's April tariff announcement. Some BOJ watchers saw Ueda's comments this week as surprisingly dovish and ruling out the chance of near-term rate hikes. Former BOJ board member Takahide Kiuchi said even if the BOJ resumes rate hikes, the next one will likely be around year-end or early next year, which would give the bank time to grasp the economic impact of Trump's tariffs. Even so, the BOJ has recently escalated its warning about the second-round effects of supply shocks as it grows wary of being caught behind the curve in addressing the risk of too-high inflation. In the May 1 outlook report, the BOJ said rising rice and food prices could affect underlying inflation by changing public perceptions on future price moves. In the strongest warning to date on price pressures, Ueda said last month that Japan was experiencing "another round of supply shocks" in the form of food price rises that could demand a policy response. "Given that underlying inflation is closer to 2 per cent than a few years ago, we need to be careful about how food price inflation will impact underlying inflation," he said, pointing to the danger of looking through the impact of raw material prices. The BOJ is paying particular attention to how rising food prices could affect households' inflation expectations. The doubling of the price of rice, a Japanese staple, has drawn intense public attention. "Price hikes are no longer scaring away consumers, which may be a sign households' inflation expectations are already heightening," a source familiar with the BOJ's thinking. "If headline inflation stays around 4 per cent, some in the BOJ might shift more in favour of rate hikes," another source said. For now, the BOJ will likely stick to communication that leaves itself room to stand pat for as long as needed - or hike swiftly if uncertainty over U.S. trade policy clears up. That will likely keep market players guessing on the next rate-hike timing. Analysts at ING expect the BOJ to hold off raising rates until early 2026 if Japan's tariff negotiations with the U.S. drag on longer than expected. But they add the timing could be pushed forward if underlying inflationary pressures build. "The earlier price gains of rice and food have been passed on to services prices and other manufactured prices. We also see a gradual pick-up in rents over the next few months," ING said.
