Core inflation in Japan’s capital slowed below the central bank’s 2% target to hit the lowest level in nearly two years, data showed on Friday, underscoring policymakers’ view that cost-push pressures will continue to ease in coming months.

The focus shifts to whether wages will rise enough to underpin consumption and help Japan sustainably achieve the Bank of Japan’s 2% inflation, which it describes as a prerequisite for phasing out its massive monetary stimulus, analysts say.

The core consumer price index (CPI) in Tokyo, a leading indicator of nationwide inflation trends, rose 1.6% in January from a year earlier, government data showed, slower than a median market forecast for a 1.9% gain.

The Tokyo core inflation, which excludes volatile fresh food but includes fuel costs, slowed for the third straight month to the lowest level since March 2022, due mostly to falling energy prices. It followed a 2.1% rise in December.

The so-called “core core” index that strips away both fresh food and fuel prices – closely watched by the BOJ as a gauge of broader price trends – rose 3.1% in January after increasing 3.5% in December, the data also showed.

With inflation having exceeded the BOJ’s 2% inflation target for more than a year, many market players expect the bank to end negative interest rates this year with a growing number of them betting on this to happen in March or April.

The BOJ has pledged to keep ultra-loose policy until the recent cost-push inflation is replaced by price rises driven by robust domestic demand, accompanied by higher wages.

The central bank maintained its ultra-easy monetary settings on Tuesday but signalled its growing conviction that conditions for phasing out its huge stimulus were falling into place, suggesting that an end to negative rates was nearing.

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