Inflation in Japan’s capital fell as expected in December. It was now within spitting distance of the Bank of Japan’s yearly target, likely heralding a similar trend from nationwide inflation.
Tokyo core consumer price index (CPI) inflation- which excludes volatile fresh food prices, rose at an annualised 2.1% in December, data from the Statistics Bureau showed on Tuesday. The reading aligned with expectations and fell below 2.3% in November.
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Month-on-month core CPI inflation rose 0.1% from November.
A core reading that excludes both fresh food and fuel prices rose 3.5% in December, down from 3.6% in the prior month. The BOJ closely watches the core reading as a measure of underlying inflation and has fallen steadily from 40-year highs in 2023.
Headline Tokyo CPI inflation fell to an annualised 2.4% in December from 2.6% in the prior month.
The softer inflation reading was driven by minimal increases in food and fuel prices, which now appeared to be stabilising with global supply chains. Strength in the Japanese yen through December also helped bring down import costs, a major contributor to inflation over the past two years.
The core CPI reading was now a smidge above the BOJ’s annual 2% target range, which the bank has cited as one of its key considerations to begin tightening its ultra-dovish policy.
The Tokyo CPI reading usually heralds a similar reading from nationwide inflation due later in January. Tokyo is the biggest city in Japan and the country’s biggest economic engine.
But Tuesday’s inflation reading does not reflect the impact of a devastating earthquake in Japan at the beginning of 2024, which is expected to ramp up inflation as the government rolls out more fiscal spending amid rebuilding efforts. The quake killed hundreds of people and caused widespread disruption in central Japan.
Stimulus measures in the wake of the disaster are expected to potentially delay the BOJ’s plans to pivot away from its ultra-dovish stance. The yen had fallen sharply in the first week of 2024, tracking this notion.