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In the latest economic update, Japan’s growth rate for the fourth quarter was revised down to an annualized 2.2%, presenting challenges for the Bank of Japan (BOJ) regarding future interest rate adjustments. This figure fell short of the previously estimated 2.8% growth and also dipped below market expectations.
According to the Cabinet Office’s data released this week, the gross domestic product (GDP) expanded by 0.6% on a quarterly basis, down from an earlier report of 0.7% growth.
The BOJ is expected to maintain its current policy rate during its upcoming meeting on March 18-19. However, discussions might arise regarding a potential hike as early as May, driven by inflation concerns stemming from rising wages and persistent increases in food prices, as Reuters reported.
Japanese Prime Minister Shigeru Ishiba remarked earlier this week that the BOJ is nearing its target of 2% inflation, underscoring the central bank’s commitment to stabilizing prices.
In line with efforts to normalize its previously accommodative monetary policy, the BOJ increased short-term interest rates by a quarter percentage point to 0.5% in January, marking the highest rate since the global financial crisis that began in 2008.
BOJ Governor Kazuo Ueda, along with other significant board members, has indicated that additional rate increases could follow if inflation consistently approaches the target. Recently, 10-year Japanese government bond yields reached their highest levels since October 2008, attributed to ongoing inflation and global selling pressure in bond markets, combined with BOJ announcements to taper its bond-buying program.
Headline inflation in Japan has now exceeded the BOJ’s 2% target for over 34 months, with January’s data reflecting a two-year peak at 4%. Notably, the “core-core” inflation rate, which omits volatile fresh food and energy prices, rose slightly to 2.5% in January, reaching its highest level since March 2024.
In a related development, the BOJ is expected to publish the corporate goods price index for January shortly. This index, which tracks the prices that companies charge each other, is projected to show a month’s decline of 0.1%, while still reflecting an annual increase of 4.0% according to a survey conducted by Reuters.
Source
www.cnbc.com