Japan’s Core Consumer Prices Show Steady Growth, Slowest in Nine Months

Data released on Friday revealed that Japan’s core consumer prices increased by 2.7% in the year leading up to August, staying above the Bank of Japan’s 2% target. However, this marked the slowest pace of growth in the past nine months, indicating that households might be finding some relief from the burden of rising living expenses.

This latest data will play a crucial role in the Bank of Japan’s two-day meeting that concludes on Friday. It is widely expected that the board will opt to maintain interest rates at the current 0.5%. The core consumer price index (CPI), which excludes volatile fresh food but includes fuel costs, matched the median market forecast with a year-on-year increase of 2.7% in August. This pace slowed compared to the 3.1% rise seen in July.

An index that removes both volatile fresh food and fuel costs, considered a better indicator of underlying price trends by the BOJ, saw a 3.3% increase in August from the previous year. This is a slight decrease from the 3.4% rise recorded in July.

The Bank of Japan’s decision to end its decade-long stimulus program last year and subsequently raise short-term interest rates to 0.5% in January was based on the belief that Japan was on track to consistently meet its 2% inflation target.

Although Japan has seen consumer inflation surpass the 2% target for more than three years, Governor Kazuo Ueda has emphasized the importance of proceeding cautiously with further rate hikes, given the uncertainty surrounding the impact of U.S. tariffs on the Japanese economy.

Looking ahead, the Bank of Japan anticipates that the inflationary pressures fueled by rising rice and import costs will begin to ease, paving the way for more sustained price increases supported by robust consumption and wage growth, as outlined in forecasts made in July.