- Martin Schulz senior economist at Fujitsu Research Institute
The cost of living in Japan's capital soared 2.7% this month from the same period a year earlier, hitting the highest since 1992 and accelerating from a 1% increase a month earlier. The rise comes after the government increased its consumption tax to 8% from 5% earlier this month, planning to raise the tax up to 10% next year. The inflation in Tokyo or the Ku-area is considered to be a leading indicator of the overall trend in the country, hence the broader gauge of CPI can post a significant increase. At the same time, Japan's inflation for March picked up 0.3% on a monthly and 1.6% on a yearly basis, while consumer prices excluding food and energy posted the same advance from a month early as a broader measure, while annual gain was only 0.7%.
The impact of the sales tax hike is projected to have pushed the indicator by 1.7% in April, moving closer to the central bank's official target. While figures can look promising, the increase was provoked mostly by the tax hike, and the country is still far away from the 2% inflation in a sustainable manner.
The central bank is getting increasingly concerned about the fact the bond market is failing to reflect a pickup in inflation, adding to signs there is a risk of a sudden surge in yields. On Friday, the nation's benchmark 10-year government bonds yield stood at 0.615– almost unchanged from March 2013.
© Dukascopy Bank SA