Tokyo CPI inflation rises more than expected in January

By Ambar Warrick

Investing.com -- Inflation in Japan’s capital grew more than expected in January, data showed on Friday, heralding a similar rise in nationwide inflation and a higher chance of monetary tightening measures by the central bank.

The Tokyo Core Consumer Price Index rose at an annualized 4.3% in January from 4.0% in the prior month, hitting a 41-year high and also beating expectations for a reading of 4.2%, data from the Statistics Bureau showed.

Including the prices of volatile materials such as fresh food, Tokyo CPI inflation grew 4.4% in January from 4% in the prior month, also hitting an over 41-year high.

Tokyo CPI inflation has outpaced expectations for the past four consecutive months, as Japan struggles with rising import costs of fuel and food. The Tokyo reading usually acts as a bellwether for broader inflation in the country, which was also trending at a 41-year high by end-2022.

The Japanese yen rose 0.4% after the reading, given that rising inflation increases the pressure on the Bank of Japan to tighten monetary policy. While the central bank is unlikely to raise interest rates from record-low levels, markets are expecting the bank to further widen its range of yield curve control after a surprise move in December.

Depreciation in the yen also fed into Japanese inflation, as the gap between local and international interest rates pushed traders into higher-yielding currencies. While the yen has recouped some of its 2022 losses, it is still at relatively weak levels.

CPI inflation is now at twice the BOJ’s annual target rate of 2%, with the bank forecasting that it will stay elevated in the near-term. A summary of the BOJ’s latest meeting showed that policymakers were divided over being able to achieve the 2% target.

High inflation is expected to further weigh on the Japanese economy, after causing an unexpected contraction in the third quarter.