Tokyo Consumer Inflation Exceeds BoJ Target for Seventh Consecutive Month

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The underlying consumer prices in Japan’s capital, a leading indicator of nationwide trends, rose 4.0% faster than expected in December from a year earlier, beating the central bank’s 2% target for the seventh straight month, in a sign of widening inflationary pressure.

This increase, the fastest in four decades, is likely to bolster market expectations that the Bank of Japan (BOJ) will gradually reduce its massive stimulus by tightening its monetary policy to control the yield curve.

“It is clear that Japanese inflation is picking up as a trend. The economy’s output gap is also likely to turn positive soon,” said Mari Iwashita, chief market economist at Daiwa Securities.

“Overall, we are seeing more data that will give the Bank of Japan reasons to finally normalize its monetary policy.”

The rise in Tokyo’s core consumer price index (CPI), which excludes fresh food but includes fuel, beat the median market forecast of 3.8 percent and a 3.6 percent rise in November, state data showed on Tuesday.

The last time Tokyo’s inflation was faster was in April 1982, when core CPI was 4.2% higher than a year earlier.

Tokyo’s core CPI, which excludes fuel and fresh food, was 2.7% higher in December than a year earlier, beating the 2.5% annual rise recorded in November.

The rise in Tokyo’s CPI increases the likelihood that domestic consumption inflation will remain above the Bank of Japan’s 2% target in December.

The Bank of Japan is likely to revise its inflation forecasts upwards in next week’s rate review, sources told Reuters, underscoring its conviction that robust domestic demand will sustainably keep inflation around its 2 percent target in the coming years.

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