Japan's core consumer price gains

Core inflation in Japan rose to 2.9% on the year, slightly below forecasts, but higher than previous 2.8%. 

Although inflation has consistently exceeded the central bank's 2% target for 20 straight months, the Bank of Japan maintains that the elevated cost pressures primarily stem from increased global commodity prices and a depreciation of the yen. These factors are attributed to external forces rather than indicative of sustained price gains driven by robust domestic demand and wage growth.

Yoshimasa Maruyama, chief market economist at SMBC Nikko Securities, anticipates that the central bank will cease negative interest rates and eliminate yield control, possibly as early as April next year. This decision is expected to align with the outcomes of labour-management wage negotiations and the current trend among companies to transfer cost increases. 

Many analysts view the yield control policy as losing relevance, especially as the Bank of Japan has progressively made the 10-year yield target more flexible, pushing the Japanese Government Bond (JGB) yield closer to the 1% mark.

The International Monetary Fund's (IMF) global financial stability report indicates that the Bank of Japan is expected to implement a rate hike in 2024, in contrast to the Federal Reserve and other central banks that are projected to undergo rate cuts. This shift is anticipated to narrow the interest rate differentials, contributing to the strengthening of the Japanese yen. 

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Japan’s Nikkei 225 gained 0.52% to hit its highest level since July 3, while the Topix advanced 0.54% to end at 2,390.94.

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