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Japan's economy faces challenges! The depreciation of the yen is accelerating, and the prospect of the central bank raising interest rates is "smoky"

2024-04-03

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The outlook for the Bank of Japan to raise interest rates has been dampened by signs of weakness, with factory output falling and core inflation slowing, raising uncertainty about the outlook for the Bank of Japan's monetary policy.

Signs of slowing inflation, poor economic data

Core inflation in March was slightly lower than expected and factory output unexpectedly fell, indicating that price pressure came mainly from raw material costs rather than domestic demand.

Data showed that the core consumer price index (CPI) rose 2.4% year-on-year in March, in line with market forecasts and slightly lower than February's 2.5% increase, which is an early indicator of national data.

Another index, which excludes the impact of fresh food and fuel costs and is seen as a broader indicator of price trends, also showed inflation slowed to 2.9% in March from 3.1% in February.

While core inflation remains above the Bank of Japan's 2% target, the slowdown suggests price pressures in Japan come mainly from raw material costs rather than strong domestic demand.

According to other data, Japan's factory output unexpectedly fell by 0.1% in February, lower than the market forecast of 1.4% growth.

Output is expected to rise 4.9% in March and 3.3% in April, according to data from manufacturers surveyed by the Ministry of Economy, Trade and Industry.

Central bank policies challenged

Economists believe that the Bank of Japan may take a cautious approach to the next interest rate hike, causing investors to continue selling the yen and may face pressure to intervene in the market.

The Bank of Japan ended eight years of negative interest rate policy in March, but faces cautious expectations of further interest rate hikes, making the market full of uncertainty.

Although companies have proposed substantial wage increases to combat inflation, signs of weak consumption remain and coupled with a decline in factory output, the Japanese economy faces many challenges.

The above information is provided by special analysts and is for reference only. CM Trade does not guarantee the accuracy, timeliness and completeness of the information content, so you should not place too much reliance on the information provided. CM Trade is not a company that provides financial advice, and only provides services of the nature of execution of orders. Readers are advised to seek relevant investment advice on their own. Please see our full disclaimer.

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Japan's economy faces challenges! The depreciation of the yen is accelerating, and the prospect of the central bank raising interest rates is "smoky"

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