MNI INSIGHT: Japan Apr CPI Above 2%, But BOJ Easy Policy Stays

A weak economy and limited wage hikes will keep the Bank of Japan focused on easy policy even as a flatter base comparison for mobile phone charges in consumer prices will add to already stubborn cost-push prices to keep headline inflation above 2% , MNI understands.

Bank officials, including Governor Haruhiko Kuroda this month before parliament, have been steadfast on the need to keep the minus/plus 0.25% yield curve control in place and the overall easy policy stance in the face of weaker economic growth and what are termed transitory price gains not consistent with sustained 2% inflation, See: MNI INSIGHT:Weak Q2 GDP Would Reinforce BOJ Easy Policy Stance.

On Friday, April core consumer inflation rose 2.1% y/y, for the highest level since March 2015, according to official data, and is expected to stay at above 2%, MNI understands. April core-core CPI, excluding fresh food and energy items - the BOJ's preferred gauge, rose 0.8% y/y from a 0.7% dip in March.

At the April policy meeting, the BOJ board’s median forecast for core CPI this fiscal year was revised up to +1.9% from January’s +1.1%.

INFLATION AND GROWTH

But even with prices above at or above 2% in the coming months, BOJ officials do not expect an upward change in medium- to long-term inflation expectations and suggest volatile food and energy costs will not sustain second-round knock-on effects on consumers.

Instead, BOJ officials are worried about downside risks to the economy on the back of a worsening of terms of trade and say current policy is the best way to combat a slowdown. Some analysts, including former BOJ officials, however have said that the central bank may need to at least tweak policy in the face of expected steady rate hikes this year by the Fed and other pressures, See: MNI INTERVIEW: BOJ Should Review 2% Target-Ex Senior Official.