Core inflation in Tokyo slowed to a 15-month low in January due to gasoline subsidies and easing food price pressures, offering some relief to consumers. Yet an underlying gauge excluding fresh food and fuel remained above the Bank of Japan's 2% target, indicating continued progress toward sustainable price growth.
Core inflation in Tokyo, excluding fresh food, rose 2.0% in the year to January, data showed on Friday, falling short of a median market forecast for 2.2% and slowing from December's 2.3% increase. This marked the lowest year-on-year rise since 1.8% in October 2024, largely due to base effects from last year's sharp food price increases and gasoline subsidies.
A separate index stripping out both fresh food and fuel—closely watched by the Bank of Japan as a measure of underlying demand-driven prices—rose 2.4% in January, down from 2.6% in December but still well above the BOJ's 2% target. The figures align with the BOJ's projection that core inflation will dip below 2% temporarily as food price hikes fade, before accelerating again supported by steady wage gains bolstering household purchasing power.
"Today's data won't derail the BOJ's efforts to raise interest rates because the slowdown in core inflation is due mostly to one-off factors," said Yoshiki Shinke, senior executive economist at Dai-ichi Life Research Institute. He noted that while fuel subsidies may push inflation below target in coming months, attention will turn to whether firms pass on rising import costs from a weak yen. "The BOJ may hike rates in April if the weak yen prods many companies to push up prices at the April start of Japan's fiscal year," Shinke added.
Separate data on Friday showed Japan's factory output edged down 0.1% in December from the prior month, better than the expected 0.4% dip. Manufacturers anticipate a 9.3% jump in January and a 4.3% fall in February.
The BOJ hiked rates to a 30-year high of 0.75% in December, another step away from decades of massive monetary easing, signaling confidence in achieving durable 2% inflation. Last week, it retained hawkish forecasts and highlighted vigilance against yen weakness amid political pressures.
