Tokyo core inflation dips below 2%, but firm underlying prices keep BOJ tightening bias intact.
Summary:
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Tokyo February headline CPI: 1.6% y/y (exp 1.4%)
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Core (ex fresh food): 1.8% y/y (exp 1.7%, prior 2.0%)
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Core-core (ex fresh food & energy): 2.5% y/y (exp 2.3%, prior 2.4%)
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Core inflation slips below BOJ’s 2% target for first time in 16 months
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Trend inflation gauge strengthens, in line with BOJ’s “temporary slowdown” view
Inflation in Japan’s capital moderated in February, with core prices slipping below the Bank of Japan’s 2% target for the first time in 16 months, though underlying momentum remained firm.
Data for Tokyo, widely viewed as a leading indicator for national inflation, showed headline CPI rose 1.6% year-on-year, above expectations of 1.4%. Core CPI, which excludes fresh food, increased 1.8% y/y, easing from 2.0% previously and dipping below the BOJ’s 2% target. Markets had expected a 1.7% rise.
However, the index excluding both fresh food and energy accelerated to 2.5% y/y from 2.4%, topping forecasts of 2.3%.
The moderation in core inflation largely reflects fuel subsidies and the removal of gasoline tax surcharges, alongside fading base effects from last year’s food price spike. The result aligns with the BOJ’s guidance that inflation would temporarily slow before reaccelerating on the back of steady wage gains.
The print presents a nuanced test for policymakers. Officials have maintained they will keep raising rates if economic and price forecasts materialise.
Separately, factory output rose 2.2% in January, its first increase in three months, driven by double-digit car production gains
