Japan's Tokyo CPI has fallen for two consecutive months, and energy and food prices have fallen

# Source: Wall Street News

# By Yang Chen

Tokyo's CPI has fallen for two consecutive months, with core CPI dropping to 2.0%, below expectations. The decline in energy prices has widened, food price growth has moderated, and service prices have maintained a modest rise. Slowing inflation has dented expectations of a rate hike by the Bank of Japan (BOJ), and the yen tumbled following the data release.

Tokyo's consumer price index (CPI) has declined for two straight months. Energy price falls have deepened, food price inflation has eased, and service prices have risen moderately. The core CPI reading of 2.0% is exactly at the central bank's 2% target level, and the cooling trend for two consecutive months may prompt the BOJ to adopt a more cautious stance on interest rate hikes.

The US dollar rose against the yen after the data release, with USD/JPY up 0.44% as of press time.

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, missing the expected 2.2% and down from the previous 2.3%. Tokyo's CPI excluding fresh food and energy climbed 2.4% year-on-year, below the forecast 2.6% and the prior 2.6%. Tokyo's headline CPI stood at 1.5%, falling short of the expected 1.7% and the previous 2.0%.

The slowdown in Tokyo's CPI, a leading indicator, signals that inflationary pressures across Japan are easing.

Falling energy prices were the main drag on inflation. Gasoline prices plunged 14.8% year-on-year, a sharp widening from the 6.4% drop in the previous month, and overall energy prices fell 4.2%, pulling down headline inflation by 0.22 percentage points.

Food price growth continued to moderate. Excluding fresh food, food prices rose 5.6%, down from 6.2% a month earlier, reducing their contribution to inflation by 0.13 percentage points.

## Widening Energy Price Decline Weighs on Inflation

Energy prices emerged as the biggest drag on inflation in January. Gasoline prices plummeted 14.8% year-on-year, a significant expansion from the 6.4% decline in December, alone dragging down headline inflation by 0.09 percentage points.

Electricity prices fell 2.0% and city gas prices dropped 4.2%, with the overall negative contribution of energy to inflation widening from 0.19 percentage points in the previous month to 0.22 percentage points.

Month-on-month seasonally adjusted data showed gasoline prices fell 4.8% in the month, electricity prices edged down 0.1%, and city gas prices declined 0.6%. The sustained drop in energy prices reflects the weakness in the international crude oil market and the lingering effects of the Japanese government's energy subsidy policies.

## Food Price Growth Continues to Ease

Food price inflation slowed further. Excluding fresh food, food prices rose 5.6% year-on-year in January, a 0.6 percentage point moderation from the 6.2% increase in the previous month, and their contribution to headline inflation fell from 1.43 percentage points to 1.30 percentage points.

Fresh vegetable prices tumbled 13.2% year-on-year, with cabbage prices plummeting 64.4%, and fresh fruit prices dropped 10.8%.

By specific category, rice prices rose 25.5% year-on-year, eating-out prices climbed 4.1%, chocolate prices increased 24.4%, and coffee bean prices soared 66.6%. While some food categories still saw robust price gains, overall food inflationary pressures are gradually easing.

## Service Prices Maintain Modest Rise

Service prices continued to underpin inflation. Residential rents rose 1.5% year-on-year, with private rents up 2.1%, contributing 0.08 percentage points to headline inflation. Communication fees jumped 6.4% year-on-year, driven mainly by an 11.0% rise in mobile phone charges, adding 0.15 percentage points to inflation.

Education and entertainment service prices rose 2.2%, with accommodation fees up 6.0% – a slowdown from the 7.8% increase in the previous month – and their contribution to inflation fell from 0.11 percentage points to 0.08 percentage points. Nursery fees plummeted 60.4% year-on-year, reflecting the ongoing impact of the government's policy of free early childhood education.

## Slowing Inflation Dents BOJ Rate Hike Expectations

The broad-based slowdown in Tokyo's January inflation data may influence the BOJ's policy stance. The core inflation rate of 2.0% is exactly at the central bank's 2% target, but the two-month cooling trend is likely to prompt the BOJ to take a more cautious approach to interest rate hikes.

Seasonally adjusted month-on-month data showed core CPI (excluding fresh food) was flat from the previous month, and CPI excluding fresh food and energy also held steady, indicating a loss of short-term inflation momentum.

Tokyo's CPI is regarded as a leading indicator of national inflation, typically released about two weeks ahead of the national figures. The slowing inflation trend seen in the January data is expected to be confirmed in the upcoming national figures, which will provide investors with a key basis for judging the BOJ's next monetary policy moves.

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