Danske Research Team notes that Japan’s January CPI fell to 1.5% year-on-year, with core CPI at 2.0%, the lowest core reading in two years. The analysts suggest that relatively low core inflation may affect Bank of Japan rate-hike timing, even as PMIs and fiscal policy signal strong demand.

Soft inflation complicates BoJ normalization

"In Japan, January's inflationary data came in as expected with CPI falling to 1.5% y/y (Dec: 2.1% y/y) and core CPI at 2.0% y/y (Dec: 2.4% y/y)."

"The decline in headline inflation was primarily driven by utility subsidies and base effects from of last year's price surges."

"At the same time core inflation hit the lowest point in two years."

"The relatively low core inflation compared to recent years may influence the central banks decision on how soon to raise interest rates, although demand continues to be strong as shown in the February flash PMIs and fiscal policy is easing."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)