FX.co ★ Tokyo Core Inflation Softens In March

In March, Tokyo's core inflation softened but continued to surpass the 2 percent target, presenting a complex decision for the Bank of Japan concerning the direction of monetary policy following the earlier exit from negative interest rates this month.

Core inflation, which excludes fresh food, slightly dropped to 2.4 percent from February's 2.5 percent, the data from the Ministry of Internal Affairs and Communications showed. Simultaneously, inflation, excluding fresh food and fuel costs, shrank to 2.9 percent from 3.1 percent in the previous month. However, overall inflation saw a rise, reaching 2.6 percent from the previous month's 2.5 percent.

These figures imply the Bank of Japan won't tighten monetary policies any further, according to Capital Economics economist Marcel Thieliant. The Bank raised interest rates for the first time since 2007, earlier this month. The overnight interest rate was increased to between 0 and 0.1 percent from a negative 0.1 percent.

According to the ING economist Min Joo Kang, the central bank's sustained inflation growth target for this year is achievable due to stronger-than-expected wage negotiation results for the fiscal year of 2024. The Bank of Japan will focus more on the improvement in retail sales and stubborn inflation figures, as opposed to poor industrial output and labor results primarily led by a distinctive factor, added the economist.

Despite expectations for a 1.2 percent increase, March witnessed a 0.1 percent monthly drop in industrial production. However, the shrinking rate has improved from January's steep 6.7 percent setback.

As per the Ministry of Economy, Trade, and Industry, while industrial production fluctuates, it shows signs of decline. Yet, they expect a 3.3 percent boost in production in April. As another report from the ministry detailed, retail sales growth quickened to 4.6 percent in February, a marked improvement from 2.1 percent a month earlier.

The Ministry of Internal Affairs and Communications also reported a 2.6 percent jobless rate in February, challenging the forecast that remained unchanged at 2.4 percent. Consequently, the total number of unemployed individuals reached 1.77 million, an increment of 30,000 from the preceding year.