Accelerating consumer price growth is putting pressure on Japan’s central bank to begin tightening its ultra-loose monetary policy. Inflation was above the central bank’s two percent target for the ninth consecutive month in January.
“Inflation may have peaked in January, but it may not come back down to the central bank’s two percent target for some time,” Yoshimasa Maruyama, chief economist at Japanese brokerage SMBC Nikko Securities, said according to Reuters.
Incoming Bank of Japan Governor Kazuo Ueda said on Friday that the central bank must keep interest rates extremely low to support the fragile economy. In the fourth quarter, the Japanese economy emerged from recession, but its growth rate fell short of analysts’ expectations.
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Economic
Gross domestic product (GDP) increased by 0.6 percent year-on-year after a decline in the previous two quarters. Japan is the third largest economy in the world after the United States and China.
Ueda pointed out that rising costs of importing raw materials rather than strong domestic demand are behind the rise in inflation. “It is common practice to preemptively respond to demand-driven inflation, but not to respond immediately to supply-driven inflation,” he added.
According to the government’s proposal, Ueda is to replace Haruhiko Kuroda, whose second five-year term ends on April 8, as head of the central bank. Although Ueda’s appointment to the post still has to be approved by both chambers of the parliament, the governing coalition has a majority in them.
Inflation in the EU fell to 10 percent in January
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