Japan inflation data | Consumer prices pick up as BoJ pivot bets grow

Japan's core consumer price growth picked up slightly in October, after easing the previous month, reinforcing investors' views that stubborn inflation may push the Bank of Japan (BoJ) to roll back monetary stimulus before long.

The nationwide core consumer price index (CPI), which excludes volatile fresh food costs, rose 2.9 per cent year-on-year in October, government data showed on Friday, against 3.0 per cent expected by economists in a Reuters poll.

Core inflation had slowed to 2.8 per cent in September from 3.1 per cent in August, the first time it was below 3 per cent since August 2022.

The rate of inflation has hovered above the central bank's 2 per cent inflation target for 19 consecutive months, but the BoJ has insisted the cost pressures are largely driven by higher global commodity prices and the weaker yen, not a sign of sustainable price gains led by stronger domestic demand and wage growth.

"I expect the central bank to end negative interest rates and remove yield control as early as in April when they see the results of labour-management wages talks and the ongoing move among companies towards passing on costs," said Yoshimasa Maruyama, chief market economist at SMBC Nikko Securities.

The narrower gauge of inflation, or core-core index, which strips away fresh food and fuel costs, rose 4.0 per cent in the year to October, slowing from a 4.2 per cent gain in September but staying above 4.0 per cent for a seventh straight month.

Many analysts see the yield control policy as becoming obsolete as the BoJ has made the 10-year yield target more and more flexible, sending the JGB yield closer towards 1 per cent.

With inflationary pressures appearing to be more stubborn than expected, speculation is growing that the BoJ may soon have to ditch its negative interest rate policy as well as yield curve control, which sets a 0 per cent cap for the 10-year bond yield.

The BoJ has brushed aside such speculation, saying that the current global cost-push inflation is not sustainable. It says healthy wage growth is needed to spur domestic demand and prices in a stable and sustainable manner.

The latest inflation data is among indicators the BoJ will eye at its two-day policy meeting ending on December 19, its last scheduled review this year.

The government for its part is pressuring companies to raise wages to help employees overcome higher living costs.