Tokyo Inflation Slows, Offering Support for BOJ Price Outlook

Inflation in Tokyo slowed more than expected in September, offering support for the Bank of Japan’s view that prices are set to cool further, and thus ultra-easy policy needs to stay in place.

(Bloomberg) — Inflation in Tokyo slowed more than expected in September, offering support for the Bank of Japan’s view that prices are set to cool further, and thus ultra-easy policy needs to stay in place.

Consumer prices excluding fresh food rose 2.5% in the capital, decelerating from 2.8% in August largely on the back of falling electricity and gas costs, according to the ministry of internal affairs Friday. Economists had forecast a reading of 2.6%.

Behind the steady slowdown is the impact from government subsidies. Prime Minister Fumio Kishida’s decision to extend and expand utility subsidies helped reduce the overall inflation figure by 0.9 percentage point. The premier is now also mulling the size and content of his upcoming additional economic measures, after instructing the ruling party to put together a stimulus package focused on easing the impact from inflation and supporting wage growth. 

“Inflation finally slowed in line with the BOJ’s expectation,” said Moe Nakahama, a research associate at Itochu Research Institute. “A higher-base level and slowdown in energy costs will offset the rise in service prices and core-CPI will gradually decelerate to the 2% level.”

Tokyo data is a leading indicator of the national trend, suggesting the country’s inflationary momentum is also likely to continue softening. 

A deeper measure of the inflation trend that strips out fresh food and energy prices decelerated to 3.8%, slowing for the first time in three months and suggesting core-core inflation has peaked. 

Price developments will continue to be closely watched by the country’s central bank. The BOJ will likely need to revise up its price outlook when it meets in October, as inflation has remained stronger than initially anticipated. 

What Bloomberg Economics Says…

“Tokyo’s slower CPI reading for September suggests inflation is peaking, with cost-push factors abating and demand forces still too weak. The result adds to the case for a dovish stance at the Bank of Japan, which signaled this month it intends to stick to stimulus for the time being.”

— Taro Kimura, economist.

For the full report, click here. 

In its latest outlook report released in July, the BOJ saw its key price gauge averaging 2.5% for the year ending in March, expecting gains to moderate toward year-end.

The data firm Teikoku Databank says that consumers are increasingly weary of rising food costs, but price hikes may be significantly reduced from October.

BOJ Governor Kazuo Ueda re-emphasized this week that the goal of achieving 2% inflation accompanied by wage gains has not yet come into sight, citing high uncertainties for the economy and price trends.

The yen is currently hovering around 149 to the dollar, raising renewed concern that the weak currency may push up import costs and the price of basic goods from here. Oil prices are also soaring again, posing another risk for the energy resource-poor nation.

A separate concern is the country’s lackluster production against the backdrop of the global economic slowdown. A different report Friday said that factory output was unchanged in August from July. 

The sluggish production partly reflects weakening demand from trading partners. Japan’s exports fell for the second month in a row in August, led by slumps in mineral fuel and chip-making machinery. 

“Global demand for production is falling on the back of economic slowdowns abroad,” said Harumi Taguchi, principal economist at S&P Global Market Intelligence. “Exports aren’t doing well and I think production forecasts are too optimistic. We are likely to see companies hitting the brakes on capital investment.”

Despite ongoing inflation, consumption seems to have held somewhat steady. Retail sales gained 0.1% in August from a month earlier, according to a report from the industry ministry on Friday. Sales grew 7% from a year earlier. The return of overseas tourists likely continued to support spending at department stores and other shopping facilities.

Meanwhile, the unemployment rate held steady at 2.7%, while the job offers-to-applicants ratio in August also remained unchanged from the previous month at 1.29. The latter data is a leading indicator of labor market trends, and means that there were 129 jobs available for every 100 applicants.

–With assistance from Toru Fujioka.

(Updates with more details from report, economist comments.)

More stories like this are available on

©2023 Bloomberg L.P.