Inflation in Japans capital slows for 2nd month, still above BOJ target

By Takahiko Wada and Leika Kihara

TOKYO (Reuters) – Core consumer inflation in Japan‘s capital Tokyo slowed in March for a second month but remained well above the central bank’s 2% target, data showed on Friday, highlighting broadening price pressures in the worlds third-largest economy.

The data underscores the challenge incoming Bank of Japan (BOJ) Governor Kazuo Ueda faces in judging whether the recent cost-driven inflation will shift to one backed by solid demand and wage growth.

Core consumer prices in Tokyo, a leading indicator of nationwide trends, rose 3.2% in March from a year earlier, compared with a median market forecast for a 3.1% gain.

The pace of increase slowed from a 3.3% gain in February and a nearly 42-year high of 4.3% hit in January, due largely to the effect of government subsidies to curb utility bills.

A separate index for Tokyo stripping away fresh food and energy prices, which is closely watched by the BOJ as a gauge of demand-side price pressures, was 3.4% higher in March than a year earlier and faster than a 3.1% rise in February.

With inflation already exceeding its target, markets are rife with speculation the BOJ could tweak or end yield curve control (YCC) when Ueda succeeds incumbent Haruhiko Kuroda whose second, five-year term ends in April.

YCC aims to control the shape of the yield curve to suppress short- to medium-term rates without depressing super-long yields too much.

BOJ officials have repeatedly said the central bank will not roll back its massive stimulus until the recent cost-push inflation turns into one driven by strong demand, and ensures Japan achieves 2% inflation in a sustainable manner.

(Reporting by Takahiko Wada and Leika Kihara; Editing by Sam Holmes)