Japan: Core inflation stickier than expected in January
Inflation came in at 2.2% in January, which was down from December’s 2.6%. January’s figure represented the lowest inflation rate since March 2022.
In addition, the trend pointed down slightly, with annual average inflation coming in at 3.1% in January (December: 3.2%). Meanwhile, core inflation edged down to 2.1% in January, from December’s 2.2%, stickier than expected by the market and raising the possibility that the Bank of Japan will begin to hike interest rates in March or April.
Finally, consumer prices rose 0.12% in January over the previous month, contrasting the 0.09% drop seen in December. January’s figure marked the highest reading since October 2023.
Our panelists expect inflation to fall below the Bank of Japan’s (BOJ) 2.0% target in Q4, as domestic demand weakens and global commodity prices fall. That said, a key upside risk is posed by the spring wage negotiations, known as the “shunto”—last year’s lead to the highest wage hikes since 1993, forming a key part of the BOJ’s strategy to stop decades-long disinflation.
Analysts at Nomura commented:
“Spring is the season of wage negotiations in Japan (captured under the term shunto), and this year’s outcome may say much about the extent to which Japan’s economy has broken out of deflation. As a result of labor shortages and other factors, we think the overall wage hike achieved in the 2024 shunto is likely to end up being quite a bit higher than the +3.58% realized in 2023. We forecast +4.04% with reference to macroeconomic variables, and we think the risks to this forecast are increasingly to the upside.”