Tokyo Inflation Accelerates, Supporting BOJ Rate Hike Outlook
Tokyo's inflation rate accelerated in January, bolstering the Bank of Japan's (BOJ) economic outlook and increasing the likelihood of another rate hike in the coming months.
Consumer prices excluding fresh food in the capital rose 2.5% year-on-year, the fastest pace since February 2022. Overall price gains also sped up to 3.4%, the highest in nearly two years.
The labor market remained tight, with the jobless rate decreasing slightly to 2.4%. Industrial production and retail sales data were also better than expected.
Economists now widely anticipate another rate hike by the BOJ within the next six months. The latest Tokyo inflation figures, considered a leading indicator for national trends, suggest that inflationary pressure remains elevated.
"Consumers' perception of inflation is much higher than the data show," said Hideo Kumano, economist at Dai-Ichi Life Research Institute. "The BOJ has no reason to slow down the pace of interest rate hikes."
A Bloomberg survey indicates that July is the most likely timing for the BOJ's next move, with September as the next most probable.
Processed food prices led the increase in Tokyo's cost of living, with rice prices surging 73% year-on-year. Fresh food also experienced significant gains, with both fruit and vegetable prices rising.
Despite elevated inflation, Prime Minister Shigeru Ishiba recently reinstated government subsidies for utility bills, a measure that could slow price increments going forward.
Nonetheless, the BOJ upgraded its inflation projections last week, signaling confidence that consumer-price gains are becoming entrenched around its 2% target. This view is supported by Taro Kimura, economist at Bloomberg Economics, who believes the BOJ will continue to pare stimulus this year.