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Japan Inflation March 2024

Japan: Inflation above target for 24th month running in March

Inflation came in at 2.7% in March, down from February’s 2.8% but marking two years of readings above the 2.0% target of the Bank of Japan (BOJ). The slowdown largely reflected lower price pressures for transport, clothing, furniture and household utensils, healthcare, communication, and culture and recreation.

The trend was unchanged, with annual average inflation coming in at February’s 3.0% in March. Meanwhile, core inflation—which excludes food prices—fell to 2.6% in March from the previous month’s 2.8%, coming in slightly below market expectations.

Finally, consumer prices increased 0.30% in March over the previous month, contrasting February’s 0.03% drop. March’s uptick marked the highest reading since October 2023.

Average inflation should fall below the BOJ’s 2.0% target in Q4 2024 as agricultural prices decline, coming in only slightly above target in 2024 as a whole. That said, price pressures are likely to spike in summer as a result of the government’s recent decision to phase out utility subsidies from May. Upward pressure on inflation will be exacerbated by this year’s wage negotiations between unions and large firms, which concluded in March and will lead to the highest salary hike since the early 1990s, ending years of anemic wage growth.

Min Joo Kang, senior economist at ING, commented on the monetary policy outlook:

“Given that higher commodity prices combined with a weak yen are likely to push up both headline and core inflation, the BoJ’s need to raise rates sooner than market consensus is likely to increase in our view. Recent hawkish comments from Governor Ueda also signal a change in tone in the BoJ’s response to the currency move. He said that if the impact of the weak yen becomes too big to ignore, it might lead to a change in monetary policy. […] We have penciled in a 15bp hike in July and a 25bp hike in October.”

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