Tokyo Inflation Rises Above 4%, Prompting Yen Gains

  • In Business
  • 2023-01-26 23:51:28Z
  • By Bloomberg

(Bloomberg) -- Inflation in Tokyo continued to outpace expectations, rising above 4% in January, and keeping the focus on possible Bank of Japan policy change. The jump prompted gains in the yen.

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Consumer prices excluding fresh food rose 4.3% in the capital, accelerating from December's revised figure of 3.9%, according to the ministry of internal affairs Friday. The reading was the strongest since 1981 and higher than analysts' estimates of a 4.2% gain, rising further beyond the central bank's 2% target.

The yen gained to around 129.65 against the dollar from just below 130.00 immediately before the data was released.

Tokyo's data is a leading indicator of the national trend, and its acceleration implies that the country's price growth hasn't reached its peak yet. Still, many economists expect inflation to begin slowing again from February, when the effects of the government's stimulus measures begin to emerge.

The impact of Prime Minister Fumio Kishida's economic stimulus package is likely to be reflected in the inflation figure from February onward. The support for electricity costs is expected to drag down on the overall nationwide inflation figure by about 0.9%, according to a Bloomberg calculation, assuming a 20% discount on electricity bills.

What Bloomberg Economics Says...

"Looking ahead, we see core inflation slowing to around 3.1% in 1Q from 3.7% in 4Q22. Subsidies to lower the cost of electricity and gas starting in January (and affecting CPI from February) could reduce core CPI inflation by as much as 0.7 percentage point this quarter."

- Yuki Masujima, economist

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The measures, which amount to a fiscal outlay of 39 trillion yen ($301 billion), also includes a range of anti-inflationary measures such as cash handouts for childcare.

Still, utility companies are now requesting the government to raise power prices in response to surging fuel costs and a weak yen, complicating the outlook. Tokyo Electric Power Co. announced earlier this week that it had applied to lift household electricity prices by about 30% from June, which would outweigh the impact of the latest government subsidies if approved.

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