Government data showed on Friday that Japanese inflation hit a four-decade high last month, supported by rising energy costs, a weak yen and mounting pressure on the central bank to move away from its ultra-loose monetary policies.
Core consumer prices excluding volatile fresh food rose 3.6 percent year-on-year in October, marginally above analyst expectations.
The reading was the fastest pace since 1982, although it was still below sky-high levels that hit the United States and other countries.
Responding to the data, Chief Cabinet Secretary Hirokazu Matsuno told reporters that the government “must protect people’s livelihoods from rising prices.”
He said, “The price increases of items closely related to daily life such as utilities and foodstuffs continued, due to the high prices of raw materials and the weak yen.”
The government said last month it would spend $260 billion on an economic stimulus package that includes subsidizing energy bills, which have soared since Russia’s invasion of Ukraine in February.
Matsuno said that “policies targeting energy and food, the two main causes of price hikes” are included in the relief measures, as he vowed to “pass the extra budget as quickly as possible.”
The impact of inflation on the average consumer was “very real,” Daren Tai, a Japan economist at Capital Economics, told AFP.
Tai added that Prime Minister Fumio Kishida responded with a “robust” stimulus package because he “knows his constituents are not very happy with the price hike.”
– Economy ‘in full swing’ –
When energy prices are not taken into account, the inflation rate in October was a more moderate 2.5 percent, but still higher than it was in September.
The Core Consumer Price Index (CPI) has now risen for 14 consecutive months – putting pressure on the Bank of Japan to adjust its longstanding monetary easing policies.
The US Federal Reserve and other central banks have raised interest rates sharply this year to tackle inflation.
But Japan, which since the 1990s has oscillated between periods of slow inflation and deflation, has bucked the trend and has continued to keep interest rates at rock-bottom levels while trying to jump-start the faltering economy.
Although inflation is now above the 2 per cent target the Bank of Japan has targeted over the past decade, it sees the recent price hike as temporary and says there is no reason to change course.
The starkly different approaches taken by the Bank of Japan and the Federal Reserve have plunged the yen’s value against the dollar this year from levels around 115 yen per dollar in March to 140 on Friday, after hitting a 32-year low of 151 yen last year. Month.
But while the bank is keeping a close eye on inflation, Tai added, “I still don’t think it’s enough for them to change their policy at this point.”
One reason is that the latest growth data for Japan, released on Tuesday, showed a surprising contraction for the world’s third-largest economy in the July-September quarter.
“It shows the bank very clearly that the economy is in fact on shakier grounds than it would have otherwise expected,” Taye said.
“The other thing is that the global economy is likely to go into recession next year, in the first half,” he added.
“We are basically looking at very weak economic conditions in general, and the BoJ will not risk putting the economy at risk further by tightening monetary policy at this point.”