Japan February consumer inflation flat, keeps BOJ under pressure for further stimulus

Pedestrians at a crossing in Shibuya, Japan.
Photographer | Collection | Getty Images
Pedestrians at a crossing in Shibuya, Japan.

Japan's consumer inflation was flat in the year to February as low energy costs and weak consumption put a lid on price growth, keeping the central bank under pressure to top up stimulus even after easing policy less than two months ago.

Core consumer prices in Tokyo, considered a leading indicator of nationwide prices, marked the biggest annual drop in nearly three years in March, suggesting that inflation will remain subdued on weak demand as the world's third-largest economy skirts recession.

The data reinforces a dominant market view that the Bank of Japan will be forced to cut its inflation forecasts and push back the timing for hitting its 2 percent price target at a quarterly review of its projections next month.

The core consumer price index (CPI), which includes oil products but excludes volatile fresh food prices, was unchanged in February from a year earlier, government data showed on Friday.

That compared with a median market forecast of a 0.1 percent increase and followed flat growth marked in January.

Tokyo's core CPI fell 0.3 percent in the year to March, the first time it dropped by as much since April 2013 and a bigger than a median market forecast for a 0.2 percent decrease.

The BOJ stunned markets in January by adopting negative interest rates to prevent slowing overseas growth and volatile financial markets from derailing a fragile economic recovery.

But the move has failed to boost stock prices and corporate sentiment has soured since then as exports take a hit from soft emerging market demand.

Companies remain wary of raising wages, adding to growing market doubts that inflation will accelerate toward 2 percent as quickly as the BOJ projects.

The BOJ has largely blamed falling oil costs for keeping inflation subdued and has argued that underlying trend inflation is improving steadily.

But the central bank's own inflation index, which excludes the effect of energy and fresh food costs but includes processed food prices, may show that sluggish domestic demand may have more to do with slowing inflation.

The index is due at 2 p.m. (0500 GMT) on Friday.