Weak Japanese inflation could push BoJ to act

Japanese inflation stalled in January, raising concerns that the Bank of Japan will take action to fight deflation. Today’s data may pressure BoJ policymakers to step up the pace of easing, as some analysts forecast the Bank will move rates further into negative territory. Back in December, the BoJ surprised markets and introduced negative rates.

Japan’s headline inflation fell to zero in January from a year earlier, down from a 0.2 per cent pace in December, but in line with economists’ expectations.

The headline figure hit zero in September last year, and prior to that the most recent negative reading was in May 2013. Still, it is putting Japan perilously close to re-entering deflationary territory and means prices are still below where the BoJ wants them.

So-called “core-core” inflation, which is the Bank of Japan’s preferred measure that excludes more volatile food and energy prices, rose by 0.7 per cent year-on-year in January, down from 0.8 per cent at the end of last year, and also in line with forecasts.

That said, core-core is running at almost double last year’s low of 0.4 per cent, but it’s a third of the 2.1 per cent rate it was in January 2015.

The yen initially weakened after the soft inflation data on expectations of more policy easing but the currency soon recovered.

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