Japan’s Price Trend Gauge Hits Record, Signals Broadening Inflation

REUTERS/Yuriko Nakao
The Bank of Japan building is pictured in Tokyo March 18, 2009.

TOKYO (Reuters) – A key measure of Japan’s trend inflation accelerated to 2% in September, hitting a record and matching the central bank’s target, data showed on Tuesday, heightening the case for dialing back its massive monetary stimulus.

The data adds to recent growing signs of broadening inflationary pressure in the world’s third-largest economy, which had been mired in decades of price stagnation.

The 2.0% year-on-year increase in the weighted median inflation rate, which is closely watched as an indicator on whether price rises are broadening, compared with a 1.8% gain in August. It marked the fastest pace of rise since comparable data became available in 2001, Bank of Japan (BOJ) data showed.

The outcome will likely be among factors the BOJ board will scrutinize in producing fresh inflation forecasts at a two-day policy meeting ending on Oct. 31.

Sources have told Reuters the BOJ is likely to revise up its inflation forecasts and may debate raising a cap on long-term interest rates next week, as rising inflation and U.S. Treasury yields push up Japanese yields.

The BOJ remains a global dovish outlier, having maintained ultra-loose policy even as major central banks elsewhere raised interest rates aggressively to fight rampant inflation.

While the core price gauge has exceeded its target for more than a year, the BOJ has pledged to keep ultra-low interest rates until 2% inflation can be achieved on a sustained manner backed by solid consumption and wage increases.

The weighted median is the inflation rate of items at the middle of the price changes, or around the 50th percentile point of the distribution.

After hovering around zero for the past two decades, it began creeping up last year reflecting a wave of price hikes by companies passing on surging raw material costs.

Unlike the consumer price index (CPI) which is swayed by fuel and energy costs, the weighted median inflation rate is useful to trace how broadly prices are rising and is closely watched by the BOJ for clues on the broad price trend.