Tokyo's CPI has declined for two consecutive months, with energy and food prices falling.
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CPI in Tokyo, Japan has declined for two consecutive months. The decline in energy prices has expanded, the rise in food prices has narrowed, and service prices continue to rise moderately. The core CPI at 2.0% is exactly at the Bank of Japan’s target level of 2%. The cooling trend for two consecutive months may prompt the central bank to take a more cautious stance on raising interest rates.
After the data release, the US dollar rose against the Japanese yen. As of publication, USD/JPY is up 0.44%.
According to data released by Japan’s Ministry of Internal Affairs and Communications on Friday, Tokyo’s core CPI (excluding fresh food) rose 2.0% year-on-year in January, below expectations of 2.2% and the previous value of 2.3%. Tokyo CPI (excluding fresh food and energy) rose 2.4% year-on-year, below expectations of 2.6% and the previous value of 2.6%. Tokyo CPI rose 1.5%, lower than the expected 1.7% and previous value of 2%.
The deceleration of Tokyo CPI—an early economic indicator—suggests that inflationary pressure nationwide in Japan is weakening.
A drop in energy prices is the main factor dragging down inflation. Gasoline prices fell 14.8% year-on-year, a much larger decrease compared to last month's 6.4%; overall energy prices fell by 4.2%, dragging down overall inflation by 0.22 percentage points.
The rise in food prices continues to narrow. The increase in food prices excluding fresh food fell from 6.2% to 5.6%, bringing its contribution to inflation down by 0.13 percentage points.
Widening Drop in Energy Prices Drags Down Inflation
Energy prices became the biggest drag on inflation in January. Gasoline prices fell 14.8% year-on-year, a significant expansion from December's decrease of 6.4%, dragging down overall inflation by 0.09 percentage points on its own.
Electricity prices fell 2.0%, city gas prices fell 4.2%, and energy as a whole had a negative contribution to inflation expanding from last month's 0.19 percentage points to 0.22 percentage points.
Month-on-month data shows gasoline prices fell 4.8% for the month, electricity prices fell 0.1%, and city gas prices fell 0.6%. The continued decline in energy prices reflects the weakness in the international crude oil market as well as the continued effects of Japanese government energy subsidy policies.
Food Price Rises Continue to Narrow
The increase in food prices has further slowed. Excluding fresh food, food prices rose 5.6% year-on-year in January, 0.6 percentage points less than last month’s 6.2%, with the contribution to overall inflation dropping from 1.43 percentage points to 1.30 percentage points.
Fresh vegetable prices fell 13.2% year-on-year, with cabbage prices plunging 64.4%; fresh fruit prices fell 10.8%.
Specific categories: rice prices rose 25.5% year-on-year, food eaten outside the home rose 4.1%, chocolate prices increased 24.4%, and coffee bean prices soared 66.6%. Although some food prices remain high, overall food inflation pressure is gradually easing.
Service Prices Maintain Moderate Growth
Service prices continue to support inflation. Residential rent rose 1.5% year-on-year with private rent up 2.1%, contributing 0.08 percentage points to overall inflation. Communication fees rose 6.4% year-on-year, mainly led by mobile communication fees rising 11.0%, with a contribution to inflation of 0.15 percentage points.
Education and entertainment service prices increased by 2.2%, with accommodation fees rising by 6.0%, though this was slower than last month's 7.8%; its contribution to inflation decreased from 0.11 to 0.08 percentage points. Childcare service prices fell 60.4% year-on-year, reflecting the continued impact of the government’s free early childhood education policy.
Slowing Inflation Weakens Expectations for BOJ Rate Hikes
The overall slowdown in Tokyo’s inflation data for January could influence the Bank of Japan’s policy stance. Core inflation at 2.0% is exactly at the central bank’s target level, but two consecutive months of cooling may prompt the central bank to take a more cautious approach to interest rate hikes.
Seasonally adjusted month-on-month data shows CPI excluding fresh food was flat from the previous month, and CPI excluding fresh food and energy was also unchanged, signaling weaker short-term inflation momentum.
CPI in the Tokyo metropolitan area is regarded as a leading indicator for national inflation, typically published about two weeks ahead of national data. The slowing inflation trend shown in the January data is expected to be confirmed in the upcoming nationwide figures and will provide important reference for investors assessing the BOJ’s next monetary policy moves.
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