On Friday morning, official data from Japan showed that the inflation rate in February had risen for the first time in the past four months, far exceeding the annual target interest rate of the Bank of Japan.
This makes people more confident that the Bank of Japan will push for a shift in monetary policy, and also more hopeful that Japan's consumption growth can boost the Japanese economy.
The Nikkei 225 index briefly broke through 41000 points after opening in the morning, setting a new historical high in the market. However, as of the time of publication, the Nikkei 225 index has largely recouped its intraday gains. Since the beginning of the year, the Nikkei 225 index has risen by a cumulative 22.7%.
Japan's inflation is accelerating upwards for the first time in four months
According to official data from Japan, the overall Consumer Price Index (CPI) has risen by 2.8% from 2.2% last month, marking the first accelerated upward trend in the past four months and exceeding the central bank's policy target of 2% for 23 consecutive months.
Japan's core CPI (excluding fresh food prices) increased by 2.8% year-on-year in February. This data meets expectations and has rebounded significantly from the 2% increase last month - for the first time since early 2022, it fell to the Bank of Japan's annual target of 2% last month.
Japan's core CPI (excluding fresh food and energy prices) is considered a key indicator of potential inflation by the Bank of Japan, with a year-on-year increase of 3.2% in February, lower than the previous month's 3.5%.
Data shows that rising food prices remain the main driving factor for price increases, while spending on entertainment products and services has slightly rebounded compared to the previous month.
Is it possible for the Bank of Japan to accelerate interest rate hikes?
Just a few days before Friday's data was released, this Tuesday, the Bank of Japan had just raised interest rates for the first time in 17 years and ended its Yield Curve Control Program (YCC). This move marks a historic shift in the extreme dovish monetary policy of the Bank of Japan in the past decade.
The Bank of Japan predicts that inflation in Japan will continue to rise in the coming months, mainly driven by an increase in private consumption after a significant increase in wages this year.
Last Friday, the Japan Federation of Trade Unions and various companies finalized the largest salary increase in 33 years. This trend may continue to push up inflation in Japan in the coming months.
Economists believe that after Japan's inflation rate rose to 2.8% in February, the latest real interest rate (nominal interest rate minus inflation rate) in Japan further declined. This means that Japan's monetary environment is actually more relaxed, which will be beneficial for boosting the Japanese economy and prompting the Bank of Japan to accelerate interest rate hikes.
Economists predict that after narrowly avoiding a technical recession in the fourth quarter of 2023, the Japanese economy will receive a new boost this year due to increased consumption.