Japan inflation up for first time in 7 years

Japan's consumer prices rose in the fourth quarter of 2005 for the first time in more than seven years to reinforce views the…

Japan's consumer prices rose in the fourth quarter of 2005 for the first time in more than seven years to reinforce views the Bank of Japan (BOJ) will raise interest rates in a few months.

The nationwide core consumer price index, which excludes volatile fresh food prices, rose 0.1 per cent in October-December from a year earlier, the first year-on-year rise for a quarter since April-June 1998, government data showed today.

The prices data immediately sparked warnings by top government officials against a hasty rate rise, due to concerns about lingering deflationary pressure and a possible spike in the government's borrowing costs.

But as far as the market is concerned, a BOJ policy change, probably during the April-June quarter, appears to be a done deal.

The BOJ has pledged to maintain its "quantitative easing" policy, under which it floods the banking system with huge amounts of excess funds, until the core CPI shows a sustained rise above year-ago levels.

BOJ Governor Toshihiko Fukui has repeatedly said chances of a change would increase over the course of the year starting in April.

Yesterday, Mr Fukui told a parliamentary committee the BOJ's current easing policy carried risks, and that the central bank would reverse its current easing stance once it confirmed that an end to deflation was in sight.

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