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Weaker-than-expected CPI deflates expectations for imminent Japanese rate hike

Weaker-than-expected CPI deflates expectations for imminent Japanese rate hike

Japan's core consumer price index rose a weaker-than-expected 0.1 percent in December, government data showed Friday, deflating expectations that the central bank will raise interest rates next month.
Core CPI, which excludes volatile food prices, rose for the seventh straight month in December, but it was below the 0.2 percent year-on-year increase marked in November. Analysts surveyed by Dow Jones Newswires had expected a 0.2 percent gain.
The Bank of Japan is closely looking at consumer prices for indications that Japan has fully emerged from years of deflation, a continuous spiraling down of prices that deadens economic activity and brings down wages.
Earlier this month, the central bank kept rates steady at the current 0.25 percent amid political pressure to hold off so as not to choke the unfolding economic recovery. The next meeting of the Bank of Japan policy board is in February, and the big question is whether the bank will raise interest rates then.
For 2006 as a whole, Japan's core CPI rose 0.1 percent, the first gain in eight years.
"Given this tame data, it's really difficult for the bank to explain why it would want to tighten credit next month as domestic prices haven't improved," said Hiroshi Shiraishi, economist at Lehman Brothers.
But some analysts aren't ruling out a chance of a rate hike at the Feb. 20-21 board meeting.
The data for October-December gross domestic product set to be released next month are expected to be strong, a factor that will prod the bank toward tighter policy.
Economists say fourth-quarter GDP could achieve a robust annualized growth of 3 percent or 4 percent on the recovery of consumer spending from the previous quarter.
The core CPI for the Tokyo metropolitan area for January, considered a leading indicator for nationwide consumer prices, rose 0.2 percent from a year earlier, according to the ministry's data. The figure matches the 0.2 percent rise expected in the survey of economists.
Nationwide, the overall CPI including fresh food prices climbed 0.3 percent on year in December, up 0.1 percent from the previous month, according to the data.
"The CPI has been rising steadily at a slow pace since last year and I think overall it is stable," Finance Minster Koji Omi told reporters. "I want the BOJ to support the economy with policy although individual decisions are up to the Bank."


Updated : 2020-12-02 16:18 GMT+08:00