Japanese Prime Minister Fumio Kishida said that given the weak inflation caused by domestic demand, there is a possibility that the Japanese economy may return to deflation.
"The current rise in inflation in Japan is mainly due to higher commodity prices and a low yen, not domestic demand," Kishida said.
However, data released today showed that the core CPI in Tokyo - the leading indicator of nationwide trends – rose by 4.3% per annum in January, reaching the highest level in almost 42 years, which will put pressure on the Bank of Japan to gradually curtail economic stimulus. The rise in the Tokyo core CPI, which excludes fresh food but includes fuel, exceeded a market forecast (+4.2%) and marked the fastest year-on-year increase since May 1981.
When asked whether the economy has fully recovered from the deflationary situation, Kishida said: "The state of non-deflation continues at the moment, but it has not reached the stage where we can judge that a return to deflation is unlikely."
Meanwhile, commenting on the results of the December meeting of the Bank of Japan, when the parameters of the yield curve control were changed, Kishida said that such measures were an operational adjustment to smoothly strengthen and maintain the effect of monetary policy easing.