Tokyo Inflation Drops Below 2%, Complicating BOJ’s Rate Hike Plans
Japan's core inflation in Tokyo dipped below the Bank of Japan's (BOJ) 2% target for the first time in five months, signaling potential hurdles for the central bank's interest rate hike strategy. October's inflation data shows that core prices, excluding volatile fresh food costs, increased by 1.8%, slightly above market forecasts but down from September's 2% rise.
Slowing Service Inflation Signals Caution
Services inflation, a key indicator for the BOJ, also slowed, rising only 1.1% in October compared to 1.2% in September. This drop raises concerns about the BOJ’s hopes for wage-driven cost pressures to sustain inflation. According to Saisuke Sakai, senior economist at Mizuho Research & Technologies, the lack of price hikes in services reflects that rising labor costs are not spreading as expected.
Core-Core Inflation and Policy Impact
The "core-core" Consumer Price Index (CPI), which excludes both fresh food and fuel, rose 1.8% year-on-year in October, following a 1.6% increase in September. These figures are closely monitored by the BOJ as a sign of broader inflation trends.
Economists, including Takeshi Minami of Norinchukin Research Institute, do not expect this data to derail the BOJ's plans entirely but foresee a cautious approach to future rate hikes, possibly revisited by December or early next year.


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