San Francisco Frontiers - Japan's core inflation rate slows in September

The core Consumer Price Index eased from 2.8 percent in August as the pace of increase in electricity and gas prices relented, the internal affairs ministry said.

Despite the slowdown, the rate remained above the Bank of Japan's two percent target, set over a decade ago as part of efforts to boost the stagnant economy.

The target has been surpassed every month since April 2022, although the bank has questioned to what extent that is down to temporary factors such as the Ukraine war.

"The resumption of electricity subsidies resulted in a plunge in headline inflation in September," said Marcel Thieliant, head of Asia-Pacific at Capital Economics.

Thieliant predicted a further deceleration of core inflation in October, but noted that the subsidies "should be phased out completely by December, which should lift inflation".

The Bank of Japan raised interest rates in March for the first time since 2007 and again in July, in initial steps towards normalising its ultra-loose monetary policies.

New Prime Minister Shigeru Ishiba said this month that the environment was not right for another interest rate increase.

After Ishiba took office in early October, perceptions that he favoured hiking borrowing costs and the possibility that he could raise taxes triggered a surge in the yen and stock market volatility.

One dollar bought 150 yen on Friday morning after the Japanese currency weakened from levels around 149.35 the day before.

Excluding both fresh food and energy, Japanese prices rose 2.1 percent in September.

"We expect inflation excluding fresh food and energy to remain around two percent until early next year, when it should gradually fall below two percent," Thieliant said.

"Accordingly, we still expect the Bank of Japan to press ahead with another interest rate hike before year-end."

D.Brown--SFF