The latest data from Japan's core consumer inflation shows that it slowed in February. However, this is ongoing because an index stripping away energy costs hit a four-decade high. The data released on Friday also adds to the cost-push pressure on policymakers.

The Bank of Japan aims to reduce inflation to around 2%. The data will keep market expectations alive based on its bond yield control. Moreover, this data was released based on the control policy desired by the incoming governor, Kazuo Ueda.

However, the core consumer price index (CPI), which excludes fresh volatile food, but includes oil products, rose by around 3.1% in February.

This leaves the Bank of Japan slightly more relieved as it moves away from the 41-year median market forecast high of 4.2% seen in January. Meanwhile, related to the economy's slowdown, this is primarily due to government subsidies' effect on utility bills.

This has continued to rise for prices of non-energy items such as food and daily necessities, and they have yet to run their course for quite a long time.

Japan Consumer Inflation Slows to 3.1% in February, but Food Prices Jump Significantly

The data highlights the challenges the Bank of Japan faced in gauging whether the cost push will be pretty sustained. And for fragile economic recovery, this is still in the outlook of the BOJ and can phase out its bond yield control policy under Ueda's incoming head.

In connection with this news, some Bank of Japan policymakers have flagged the chance that inflation could exceed initial expectations. Price hikes and wage gains show signs of broadening. And data pay increases could be what finally shook off the deflationary with commodity prices.

"The Consumer Price Index numbers fluctuate due to supply shocks and repercussions. The effect of government steps to combat rising living costs," said Yasunari Ueno, chief market economist at Mizuho Securities.

He also added that the Bank of Japan's leadership would scrutinize Japan's price trend. It focuses on the US and European developments and its policy move.

With inflation exceeding the Bank of Japan's 2 percent target for nearly a year, the Japanese Central Bank will continue to put pressure on to roll back monetary stimulus. Otherwise, this becomes a highlight in the nation's sensitivity to swings in energy and commodity prices.

The Bank of Japan said the recent spike in inflation should be temporary, driven mainly by higher import costs. Meanwhile, the central bank aims to ensure stable inflation with robust wage growth. The data also boosts the likelihood of the sharpest gain in 3 decades.

Banking System Has Stable, Bank of Japan Still Debating the Side-Effects of Easy Policy

The Bank of Japan has a difficult task of working further toward improving market functions. Underscoring the bank's concern over the rising cost of its bond yield control policy has also become a concern from markets because betting on a near-term interest rate has hiked too.

But some Bank of Japan members voiced concern over the yield curve's distortions. This is a note that the Bank of Japan to contain in December by raising the 10-year bond yield cap to 0.5% from 0.25%. And the market functions have not been fundamentally fixed.

"Each country promptly ramped up efforts as risk-aversive moves. Japan's financial system is stable as a whole," said Chief Cabinet Secretary Hirokazu Matsuno. He said this stability could trigger an intense alarm and affect Japan's financial sector.

Japanese policymakers have brushed aside the chance of contagion in Japan. Domestic banks have the potential to steer a smooth exit from ultra-low interest rates. The Bank of Japan is now debating the side effects of easy policy and the likelihood that the final result is the sharpest gain.