Tokyo's Core Inflation Slows for Second Month, Complicating BOJ's Rate Hike Decision
Core inflation in Tokyo, Japan's capital, slowed for the second consecutive month in April, falling below the Bank of Japan's (BOJ) 2% target. This data, released just hours before the conclusion of the BOJ's two-day policy meeting, complicates the central bank's decision on when to raise interest rates.
The core consumer price index (CPI) in Tokyo, a leading indicator of nationwide figures, increased by 1.6% in April from a year earlier, down from a 2.4% gain in March. This figure was lower than the median market forecast of 2.2%.
A separate index that excludes the effect of both fresh food and fuel costs, viewed as a broader price trend indicator, also showed inflation slowing to 1.8% in April from 2.9% in March. This was the slowest pace of increase since September 2022, when the index rose 1.7% year-on-year.
While core inflation remains above the BOJ's 2% target, the slowdown raises questions about whether consumption and wage pressure will strengthen enough to sustain price growth around that level.
The BOJ has previously stated that its decision to end negative interest rates last month was driven by signs that robust demand and the prospect of higher wages were encouraging firms to continue raising prices for both goods and services.
However, the weak yen presents a challenge to the BOJ's rate hike path. While it helps exports and pushes up inflation, the hit to consumption could cool the economy and discourage firms from passing on higher costs to households.
The BOJ is expected to keep interest rates steady at its policy meeting and produce fresh quarterly inflation projections through early 2027. The central bank will need to carefully consider the evolving economic landscape, including the impact of the weak yen and the pace of inflation, as it determines the appropriate timing for future policy adjustments.