Japan’s inflation in January reached a new maximum

Inflation in Japan’s core consumer market hit a new high in January. This is because companies have to pass on costs to consumers, which forces central bank leaders to end an aid program slowly.

January’s data highlights the dilemma facing Japan’s monetary policymakers as fuel and daily necessities prices increasingly hit households’ budgets. Many still need incomes high enough to cover higher living costs.

The national consumer index, which excludes food volatility, but includes energy prices, rose 4.2% in January from a year earlier. This is the strongest annual gain since 4% in December.

Data showed that consumer inflation was above the Bank of Japan’s two percent target for the ninth month in a row. This mostly reflects rising fuel and raw material prices.

Inflation will probably peak in January, but it may take a while for it to go down below the Bank of Japan’s two percent target, said Yoshimasa Maruyama, chief economist at SMBC Nikko Securities.

New governor Kazuo Ueda has to keep the Bank of Japan’s yield control policy, which has been criticized for not raising interest rates fast enough. Markets think strong inflation will make the bank change its mind.

The Bank of Japan announced an emergency bond purchase

The Bank of Japan (BOJ) bought government bonds after the 10-year note broke the central bank’s yield control ceiling.

Japanese bonds have come under pressure again since the government nominated academic Kazuo Ueda to be the central bank’s next governor, writes the Financial Times.

Investors think the new governor will change central bank policy, especially with Haruhiko Kuroda’s ultra-easy money.

The Bank of Japan announced that it would buy government bonds with a term of five to 10 years in the amount of 300B yen and bonds with a term of 10 to 25 years in the amount of 100B yen. The announcement came after the yield on the 10-year note rose to 0.505 percent, above the Bank of Japan’s limit of 0.5 percent.