Japan's Core Inflation Declines Amid Energy Subsidies
Japan's core inflation rate slowed to 2.4% in September from a previous 2.8%, largely attributed to the government's rollout of energy subsidies. While this decline is significant, an index excluding fresh food and fuel remained steady at 2.1%, indicating persistent price pressures that could influence the Bank of Japan's (BOJ) future interest rate decisions.
Despite this slowdown, a Reuters poll revealed that inflation in Tokyo, a key indicator of national trends, is expected to fall below the BOJ's 2% target in October. This tepid performance raises concerns about the sustainability of wage growth as a driver for consumption.
Economists, including Junichi Makino from SMBC Nikko Securities, anticipate that falling global commodity prices and a strengthening yen will further reduce food prices in the coming months. Nationwide data for September showed service inflation decelerating to 1.3%, reinforcing the BOJ's cautious stance on future rate hikes.
As Japan's economy showed a robust annualized growth of 2.9% in Q2, the central bank will closely analyze upcoming data to assess whether domestic demand can support stable inflation rates. With the BOJ's next policy meeting scheduled for October 30-31, market analysts predict potential rate hikes may occur by March next year.


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