Inflation in Tokyo Falls Below BOJ Target, Slows for Second Consecutive Month

Core inflation in Tokyo, Japan’s capital, has slowed for the second consecutive month in April, dropping below the central bank’s 2% target. The latest data released on Friday revealed that the core consumer price index (CPI) in Tokyo increased by 1.6% in April compared to a year earlier, down from a 2.4% gain in March. This figure fell short of the market forecast of a 2.2% rise.

The slowdown in inflation comes just hours before the Bank of Japan’s policy meeting, where the board is expected to maintain interest rates at their current levels. The central bank is also set to provide fresh quarterly inflation projections through early 2027.

A separate index that excludes the impact of fresh food and fuel costs, considered a broader indicator of price trends, also showed a decrease in inflation to 1.8% in April from 2.9% in March. This marks the slowest pace of increase since September 2022.

While core inflation remains above the central bank’s target, the deceleration raises concerns about the strength of consumption and wage pressures to sustain price growth around the desired level. The Bank of Japan’s recent decision to end negative rates was based on expectations of robust demand and potential wage increases leading to higher prices for goods and services.

However, the weak yen presents a challenge for the central bank’s rate hike plans. While it benefits exports and boosts inflation, it could dampen domestic consumption and discourage businesses from passing on increased costs to consumers. The evolving economic landscape in Japan continues to pose challenges for policymakers as they navigate the path towards sustainable growth.