The increment of Japan’s inflation rate announced on Friday has sparked hopes of a rebound in price growth, despite inflation remaining below the Bank of Japan’s (BOJ) two percent target.
Including the effects of a recent tax hike Japan’s consumer price index (CPI) climbed to 2.2 percent in March, which was slightly above the market expectation of a 2.1 percent rise. Core inflation, excluding food and energy prices, rose 0.2 percent on annual basis.
However, the Japanese economy is still expanding at a slow pace as companies are distrustful of a spur in consumer spending despite record profits.
On a positive note, the Japanese unemployment rate fell to 3.4 percent from 3.5 percent and household spending increased 2.4 percent in March compared to the previous month.
Conversely, wage growth was less positive as small firms resist government pressure to substantially raise pay as they struggle to pass on costs.
A shrinking labor market has been seen as an important source of inflationary pressure.
Prime Minister Shinzo Abe has used generating inflation as a key strategy to revitalise the Japanese economy by pushing companies and consumers to spend more of their savings.
In a further attempt to expand the Japanese economy, Abe took a series of policy measures known as “Abenomics.”
The BOJ expanded their monetary base on Apr. 2013 through the application of a quantitative easing program worth $670 billion.
In addition to other factors, low oil prices are seen as a cause for Japan’s economy not reaching the 2 percent inflation target on time, BOJ Governor Haruhiko Kuroda stated on Thursday. Kuroda added that he saw no need to alter the quantitative easing programme since rising wages are underpinning a broad uptrend in prices.
Additionally, the central bank stated that once oil prices begin to pick up Japan’s inflation rate could make a V-shaped recovery toward two percent.