Tokyo's Core Inflation Slows, Complicating BOJ's Rate Hike Decision
Core inflation in Tokyo, a leading indicator for nationwide figures, slowed for the second consecutive month in April, falling below the Bank of Japan's (BOJ) 2% target. This development adds complexity to the central bank's decision on when to raise interest rates.
The data comes just hours before the conclusion of the BOJ's two-day policy meeting, where the board is expected to maintain interest rates and release updated quarterly inflation projections through early 2027.
The core consumer price index in Tokyo increased by 1.6% in April compared to the previous year, down from a 2.4% gain in March. This figure was lower than the median market forecast of 2.2%.
A separate index excluding fresh food and fuel costs, which serves as a broader indicator of price trends, also showed inflation slowing to 1.8% in April from 2.9% in March. This marked 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 sufficiently to sustain price growth around that level.
The BOJ 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 benefits exports and pushes up inflation, the impact on consumption could cool the economy and discourage firms from passing on higher costs to households.