Producer inflation in Japan continued to ease in February as the government is trying to cap sharp increases in energy costs for both households and businesses while lumber and fuel costs fell at a faster pace amid slowing global growth, data released Friday by the Bank of Japan showed.

At its latest meeting on Jan. 17-18, the BOJ policy board decided unanimously to maintain its basic monetary easing stance, keeping its zero to slightly negative interest rate targets along the yield curve and large asset purchases, against the backdrop of a possible recession in other major economies and an expected waning in inflation this year after the recent spike boosted by high import costs.

The Econoday Consensus Divergence Index stood at minus 10, a little under zero, which indicates the Japanese economy is performing slightly worse than expected after outperforming earlier this year. Excluding the impact of inflation, the index was at minus 6.

The corporate goods price index (CGPI) rose 8.2 percent on the year in February, coming softer than the median economist forecast of an 8.5 percent rise (forecasts ranged from 7.3 percent to 8.6 percent gains). It was the 24th consecutive gain following increases of 9.5 percent in January, 10.5 percent in December, 9.9 percent (revised from 9.8 percent) in November and 9.7 percent in October.

The annual rate of 10.5 percent in December remains a 42-year high. It is the highest since November 1980, when the index rose 11.8 percent during the 14-month period of double-digit percentage gains through December 1980 in the wake of the 1979 oil crisis triggered by the Iranian Revolution.

The relatively weak yen at around Y133 to the dollar in February, compared to Y115 a year earlier, is keeping import costs high. The year-over-year increase in the CGPI's import price index in yen terms was 14.6 percent in February (16.9 percent in January), higher than 3.1 percent (6.4 percent previously) in contract currencies. However, the pace in yen-based price increase continued to slow from a 49.2 percent surge in July 2022.

The dollar appreciated 1.8 percent against the yen on the month in February after depreciating 3.5 percent in January, 5.2 percent in December and 3.2 percent in November and rising 2.9 percent in October, BOJ data showed. The dollar briefly surged to a 32-year high of Y151.94 in October but Japan's second wave of massive yen-buying forex intervention pushed it down to a low of Y143.55 in the same month.

On the month, the domestic CGPI fell 0.4 percent in February after being flat in January and rising 0.6 percent in December (revised from a 0.7 percent gain) and slowing from the recent peak of a 1.6 percent rise hit in April 2022. It was just below the median economist forecast of a 0.3 percent drop (forecasts ranged from a 1.3 percent fall to being unchanged). The decrease was led by lower costs for utilities (electricity, gas supply), fuels (gasoline, jet fuel and diesel) and lumber and wood products.

Japanese producer prices are expected to show further easing in February as the government is trying to cap sharp increases in energy costs for both households and businesses. The corporate goods price index (CGPI) is forecast to have risen 8.5 percent from a year earlier after rising 9.5 percent in January and a 42-year high of 10.5 percent in December. The CGPI is seen down 0.3 percent on the month after being flat the previous month, which would be the first monthly drop since November 2020.

The Producer Price Index (PPI) is a measure of the average price level for a fixed basket of capital and consumer goods paid by producers. Analysts look to the PPI for early signs of inflation in the production process.

The producer price index focuses on the prices of goods transacted between companies. It was previously known as the corporate goods price index. The index reflects the price level for the supply and demand of individual industrial goods. This index is calculated by the BoJ Research and Statistics Department. Three indexes are contained in this release - the domestic producer index, the export price index and the import price index. It is the domestic index that market players follow. The PPI comprehensively tracks input price pressures; however, the PPI has a track record of increasing and not necessarily feeding through to the CPI because of weak demand. But if an increase in the PPI is followed by a rise in the CPI, concerns about inflation may prompt the Bank of Japan to raise interest rates.