Japan’s Inflation Falls to 2% in January, Lowest in 22 Months

Core inflation in Japan slowed down for the third consecutive month as it fell to 2% in January 2024, the latest data released by the country’s Ministry of Internal Affairs and Communications shows.

In fact, the figure is the lowest in 22 months, in line with the Bank of Japan's price stability target.

 

Source: Reuters

• The core consumer price index (CPI), excluding fresh food, in January gained 2%, a decline from the 2.3% gain in December 2023. Overall, the rise is 2% over a period of a year.

• The CPI, excluding fresh food and fuel, meanwhile gained 3.5%.

In Japan, we have been witnessing a weak demand in the domestic market, soaring prices of daily use items and stagnant wages. In effect, the national economy contracted for two consecutive quarters the last year, Q3 and Q4.

The latest data brings some relief as experts expect the Bank of Japan to end its negative interest policy around the next quarter that was introduced in January 2016.

We also expect the negotiations between trade unions and employers over wages to benefit the workers. The outcome could also potentially affect the Bank’s decision.

Meanwhile, Stock Market Rallies...

Earlier, we reported that Japan’s main stock market index, Nikkei 225, last week exceeded its all-time high (ATH) that it reached 34 years earlier. Nikkei 225 index hit the mark of 39,098.68 on 22nd February, thanks to chip rally led by Nvidia.

Come Monday and the index soared to a new height, hitting the mark of 39,233.71 on 26th February.

 

Source: CNBC/Nikkei 225 Index

The ticker was trading even higher at 39,239.52 at press time. 

You might be wondering why Japan’s stock market is rallying when the country can contain inflation only to a small degree. 

However, this phenomenon is not unique to Japan. In fact, several countries facing otherwise worrying economic distress are performing exceedingly well on the stock markets. This apparent dissonance underlines the wide variety of factors affecting an economy when two or more different sections of an economy can be so wildly apart.