Japanese core inflation hit 2-year high in February

The Japanese core consumer price index, which excludes the cost of fresh food, rose 0.2% year-on-year in February, the fastest annual pace in nearly two years. 

The rise in the core inflation is good news for the Bank of Japan (BOJ), which kept the monetary policy, unchanged in March and stressed the need to keep rates low due to weak inflation. 

The 0.2% rise in the core was the second straight month of growth following a 12 months of contraction. Still, the number is way below the BOJ’s 2% inflation target. 

Japan responds to strong external demand

Japanese industrial production returned to growth in February. The activity expanded 2% month-on-month and 4.8% year-on-year. The pickup in the factory activity represents the heightened demand from China and Europe.  

Meanwhile, the domestic demand remains weak and that is likely to take the shine-off from the uptick in the core inflation number. Japanese overall household spending dropped 3.8% year-on-year, beating the estimated drop of 1.7%.