Possibility of further rate hikes by Bank of Japan diminishes amid slow rate of inflation easing

Japan's Ministry of Internal Affairs and Communications reported a 3.0% year-on-year increase in the country's consumer prices excluding the cost of fresh food for February. This represents a slowdown from January's figures of 3.2%.

Nonetheless, economists had forecast a more pronounced deceleration in price growth of 2.9%. At the same time, overall inflation in Japan also decelerated less than expected, falling to 3.7% from 4% in the previous month.

The data largely coincided with a leading indicator of inflation in Tokyo, which pointed to weaker inflation on the back of renewed energy subsidies.

Earlier this week, the Bank of Japan decided to leave interest rates unchanged as it needed to assess the impact of January's borrowing cost increase and the situation in the global economy. 

Most experts watching the regulator's policy anticipate a rate hike in June or July this year. Further rate hikes are supposed to be delivered about once every six months until the necessary degree of monetary policy tightening is achieved. Bloomberg notes that a slower deceleration in inflation could undermine these forecasts.