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Japan's inflation ticks up, bolstering BOJ stance

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Japan's inflation ticked higher in March, coming in slightly above expectations, offering a small sign of progress in the Bank of Japan's (BOJ) two-year-long effort to kick start the long-moribund economy.

"Inflation may not fall into the negative over the next few months after all," Koichi Fujishiro, a senior economist at Dai-ichi Life Research Institute (DLRI), told CNBC.

Japan's core consumer price index (CPI) for March rose 2.2 percent from a year earlier, topping expectations for a 2.1 percent rise from a Reuters poll. Excluding the effects of the consumption sales tax hike in April 2014, the nationwide consumer price index (CPI) rose 0.2 percent, above expectations for a 0.1 percent rise. It was flat in February for the first time since May 2013.

In the country's capital, Tokyo's core CPI for April rose 0.4 percent from a year earlier, slightly below the 0.5 percent forecast in a Reuters poll.

Read More BOJ cuts inflation and growth outlook, keeping policy steady

On Thursday, the BOJ kept in place its massive easing program of purchasing 80 trillion yen ($670 billion) worth of assets annually, although it lowered its forecast for fiscal 2015 inflation to 0.8 percent from its 1.0 percent projection in January. The BOJ pushed its target date for reaching 2 percent inflation back to the first half of fiscal 2016; the original target was around fiscal 2015.

Analysts have been projecting that the central bank will need to increase its asset purchases as the economy and inflation remained stubbornly stalled.

"The numbers point to the Bank of Japan shelving any additional easing, perhaps until at least early next year," said Fujishiro.

Among other data released at the same time, household spending in March fell 10.6 percent from a year earlier, a narrower fall than the 12.1 percent forecast in a poll of analysts by Reuters. It fell 2.9 percent in February. Japan's jobless rate declined to 3.4 percent in March, compared with February's 3.5 percent, coming in slightly better than a 3.5 percent forecast from a Reuters poll.

Market reaction to the data was relatively muted. The yen weakened slightly, with the U.S. dollar fetching 119.65 yen after the data, compared with around 119.41 prior to the release. The opened fairly flat after the release.

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The rise in inflation -- which Fujishiro attributed primarily to a recovery in oil prices -- marks only a slight improvement as the economy continues to waver.

"It's only a rise of 0.2 percent [excluding the sales tax hike] and is not a sign that the trend towards deflation is reversing," Yasuhide Yajima, chief economist at NLI Research Institute, told CNBC. Yajima still expects CPI to fall into the negative over the next few months, and he forecasts the BOJ will ease again in October.

Japan's real wages fell 2.6 percent on-year in March, declining for a 23rd straight month, data released after Yajima's comments showed. However, total cash earnings in March rose 0.1 percent on-year, the fourth straight month of increases.

"The expected recovery in consumption and wage growth has not really happened," Yajima said. "There is no guarantee that Dubai oil prices will recover to levels forecast by the BOJ" in the third quarter.

Japan's industrial production fell 0.3 percent in March, but that was still well above the 2.3 percent decline that had been forecast in a Reuters poll, according to data released Thursday. Japan's retail sales for March, released earlier this week, plunged 9.7 percent on-year, well below expectations, after last year's sales were front-loaded as shoppers splurged ahead of a sales-tax increase.

In April of 2013, the Bank of Japan launched a massive quantitative easing program, which was later expanded to purchase 80 trillion yen worth of assets a year, as a part of Abenomics – a series of policy measures unveiled under Prime Minister Shinzo Abe to jump start the economy.

But Abenomics has had a mixed track record.

The economy got clobbered when consumers stopped spending following a rise in the nation-wide consumption tax to 8 percent that took effect last April, forcing the government to postpone a second sales tax initially due this October.

—By CNBC.Com's Leslie Shaffer; Follow her on Twitter