Japan's February consumer inflation slows, stays distant from BOJ's goal

[TOKYO] Japan's core consumer prices rose 0.7 per cent in February from a year earlier, data showed on Friday, slowing from the previous month's pace and remaining distant from the central bank's ambitious 2 per cent target.

The price data underscores the fragile nature of Japan's economic recovery, as escalating Sino-U.S. trade frictions and slowing Chinese growth weigh on exports and business sentiment.

The increase in the nationwide core consumer price index (CPI), which includes oil products but excludes volatile fresh food costs, compared with a median market forecast of 0.8 per cent. In January, annual core consumer inflation hit 0.8 per cent.

An index the Bank of Japan focuses on - the so-called core-core CPI that strips away the effect of both volatile food and energy costs - rose 0.4 per cent in February, unchanged from the previous month's gain.

The BOJ faces a dilemma. Years of heavy money printing have dried up market liquidity and hurt commercial banks' profits, stoking concerns over the rising risks of prolonged easing.

And yet, subdued inflation has left the BOJ well behind its US and European counterparts in dialing back crisis-mode policies, and with a dearth of ammunition to battle an abrupt yen spike that could derail an export-driven economic recovery.

Some analysts say core consumer inflation may grind to a halt in coming months as recent oil price falls push down gas and electricity bills, which could put the BOJ under pressure to ramp up an already massive stimulus programme.

REUTERS