Japan Data Suggests Price Growth to Remain Tame

Japanese wholesale prices rose less than expected in January from a year earlier, a sign that price growth remains tame, and investors now await GDP data later this week to see whether the Bank of Japan is likely to raise interest rates next week.

The corporate goods price index (CGPI), which tracks trends in wholesale prices of goods, rose 2.2% in January from a year earlier, below the market consensus for a 2.4% rise, BOJ data showed on Tuesday.

The pace of annual growth in CGPI slowed for a fourth straight month after hitting a 25-year high of 3.6% in September, with crude oil and other raw material prices falling from previous highs.

While market reaction was muted, the data is unlikely to have much impact on monetary policy as it underscores the view that inflation is tame despite Japan's steady economic recovery.

Kiichi Murashima, an economist at Nikko Citigroup, said the breakdown of the data showing a 1.8% year-on-year fall in prices of domestic durable consumer goods suggested that consumer prices would remain weak.

But he said it has become harder to predict the timing of the next rate hike as BOJ policy board members hold various views on recent price movements.

Some board members have been focusing on sluggishness in consumer price index excluding energy, fresh food and special factors, he said, while others have been noting that declines in oil prices would be good news for the economy. "It is hard to know the data's implication on monetary policy decisions," Murashima said.

Compared with a month earlier, the CGPI fell 0.2% in January, short of economists' consensus forecast of a flat reading.

The BOJ left the key overnight call rate target unchanged at 0.25% last month in a rare split vote of 6-3. The central bank has kept rates on hold since last July, when it raised
rates for the first time in six years.

"I think they (the BOJ) will move this quarter, in February or March. But I think the single macro data cannot be an excuse or a strong reason to move," said Kikuko Takeda, currency strategist at Bank of Tokyo-Mitsubishi UFJ.

Traders are now focusing on fourth-quarter gross domestic product figures due out Thursday for clues to whether the central bank will raise interest rates at its policy meeting on Feb. 20-21. "The GDP's implication is also tough to determine," Nikko Citigroup's Murashima said.

"Some (BOJ board members) may say the fourth-quarter GDP data is just a compilation of past data, while others may say GDP data confirms the strength in the economy, clearing doubts based on recent mixed data," he added.

Economists polled by Reuters expect Japan's economy to have expanded 0.9% in October-December from the previous quarter, higher than 0.2% growth in July-September, because of an expected rebound in personal consumption.