Consumer prices in Japan jumped in January by the most in more than 41 years, the government reported Friday, adding to pressure on the central bank to adjust its longstanding ultra-lax monetary policy.
The key price indicator, which excludes volatile fresh foods, rose 4.2% last month, though some analysts expected it to be slightly higher. Excluding energy prices, inflation rose at a 3.2% annual rate.
That news came as the nominee to become governor of the Bank of Japan, Kazuo Ueda, told lawmakers the central bank's current strategy was “appropriate” and that its near-zero benchmark interest rate should continue “to solidly support the economy.”
Ueda is expected to succeed BOJ Gov. Haruhiko Kuroda, the chief engineer of the current policy, when his second 5-year term ends in April. The nomination requires parliamentary approval.
The BOJ’s monetary policy was designed to fight off deflation, and Japan’s inflation rate has stayed relatively low compared with the U.S. and Europe.
“Time is needed before the effects of monetary policy kick in,” Ueda told Parliament, noting the price rises are peaking.
The change of leadership at the central bank has drawn global attention, with speculation Ueda may unwind the monetary easing that Kuroda installed nearly a decade ago.
But he countered such expectations, saying that the current policy stance is needed to achieve stable consumer prices and rising wages. He also stressed the Bank of Japan was cooperating closely with central banks around the world and international monetary officials.
Ueda has been a BOJ policy board member in the past but has a mostly academic background. He will need to maneuver through challenging times. While overall inflation in Japan remains subdued, surging prices for oil, gas and other commodities have fed into prices for many consumer goods, utility rates and other costs.
The last time the core consumer price index rose as much as in January was in September 1981, according to the Statistics Bureau of Japan. At the time, oil prices had soared starting in the late 1970s in what was dubbed the “oil shock.”
Under Kuroda, the Bank of Japan set a target price rise of 2%, but prices have risen at a faster pace in recent months. Manufacturers and food outlets have been announcing price rises, one after the other.
Ueda said more time is needed to see that price increases are stable.
The change of BOJ leadership may signal a shift from the “Abenomics” economic policies of the late Prime Minister Shinzo Abe, said Haruhiko Sato, an economics analyst.
“The markets are feeling a trifle unsettled in anticipation of a shift in policy, even if it were to come gradually,” he said in a recent report.
Wage increases generally have not kept pace with inflation, adding to hardships for some households at a time when the Japanese yen has weakened against the U.S. dollar and other currencies. That boosts the purchasing prices of imports, including energy and food.
Japan avoided slipping into recession late last year, eking out a 0.6% percent annual pace of growth in October-December following a contraction in the previous quarter. The easing of COVID-19 restrictions, both abroad and in Japan, have brought a recovery in tourism and other economic activity.
