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Japan's January Consumer Price Inflation Grinds to a Halt

Japanese core consumer price rises ground to a halt in January, matching the consensus forecast and reinforcing expectations that the Bank of Japan will only tighten credit at a snail's pace.

The nationwide core consumer price index (CPI), which excludes volatile fresh food prices, was flat from a year earlier in January, government data showed on Friday.

The core CPI for the Tokyo area, which is announced a month before nationwide figures, was also unchanged in February from a year ago, falling short of the consensus forecast for a 0.1% rise, according to a survey by Reuters.

"The CPI in the Tokyo area was weaker than we thought, so the nationwide figure for February could fall into negative territory," said Azusa Kato, economist at BNP Paribas.

Year-on-year changes in core CPI have nudged above zero in the last few months after almost a decade of deflation.

While a fall in core CPI would be certain to work against the central bank's plan to gradually raise interest rates, most economists say the Bank of Japan is likely to dig its heels in. The BOJ expects the Japanese economy to keep expanding, gradually tightening labor markets and adding to inflationary pressure.

Separate government figures showed on Friday that Japan's unemployment rate stayed at 4.0% in January, better than a median consensus forecast of 4.1%.

Financial markets reacted little to the morning's flurry of data. The yen edged up against the dollar but gave up those gains to stand little
changed near 117.70 yen in the Asian session Friday.

The jobless rate has stood at 4.0% since November, the lowest level in 8 1/2-years, following annual revisions to the data, the government said.

The jobs-to-applicants ratio for January came in at 1.06, meaning 106 jobs were available per 100 applicants. That compared with economists' consensus forecast of 1.08.

Most investors think the BOJ will keep interest rates on hold for the next several months, following its rate hike to 0.50% from 0.25% last month. The central bank has said its tightening will be slow because there is limited inflationary pressure.

BOJ Governor Toshihiko Fukui also acknowledged at his news conference following the rate hike last week that year-on-year changes in core CPI could hover around zero in the near future if oil prices stay subdued.

But he said prices are expected to rise in the long run, given a rising utilization of resources, including a tightening in labor markets.

Additional government data showed that overall household spending in January unexpectedly rose 0.6 percent from a year earlier, beating a consensus market view for a 0.4% fall. It was the first year-on-year rise in 13 months.

Many economists say the household spending data is flawed with bad sampling and has been exaggerating weakness.

Most analysts agree that consumption has been soft since the middle of last year due to slow rises in disposable income of many households but is likely to improve slowly as the Japanese economy is expected to extend its expansion.

Japan's gross domestic product grew at an annualized rate of 4.8% in the final three months of last year, accelerating from 0.3% growth in the July-September quarter.

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