Tokyo consumer inflation slows for second month in a row

In March, consumer inflation in Japan's capital Tokyo slowed for a second month, but remained well above the 2 per cent target of the central bank, according to data released on Friday, highlighting the broadening price pressures in the world's third-largest economy.

The data underscores the challenge that incoming Bank of Japan BOJ Governor Kazuo Ueda faces in determining whether the recent cost-driven inflation will shift to one backed by solid demand and wage growth.

Consumer prices in Tokyo, a leading indicator of nationwide trends, rose by 3.2 per cent in March from a year ago, compared to a median market forecast for a 3.1 per cent gain.

The pace of increase slowed due to government subsidies to curb utility bills, which was a 3.3 per cent gain in February and a nearly 42 year high of 4.3 per cent in January.

A separate index for Tokyo stripping away fresh food and energy prices, which is closely watched by the BOJ as a gauge of demand-side price pressures, was 3.4 per cent higher in March than a year ago and faster than a 3.1 per cent rise in February.

With inflation already exceeding its target, markets are rife with speculation the BOJ may change or end yield curve control YCC when Ueda replaces incumbent Haruhiko Kuroda whose second, five-year term ends in April.

YCC aims to control the shape of the yield curve to suppress short- to medium-term rates without depressing super-long yields too much.

BOJ officials have stated that the central bank will not roll back its massive stimulus until the recent cost-push inflation turns into one driven by strong demand, and ensures Japan achieves 2 per cent inflation in a sustainable manner.