Tokyo Inflation Likely Eased in February Amid Government Steps: Reuters Poll

Tokyo's inflation rate is expected to have eased in February, according to a Reuters poll, as the government's steps to mitigate inflationary pressures appear to be having some impact. The core consumer price index (CPI) in Tokyo is forecast to rise 2.3% year-on-year this month, slowing down from a 2.5% gain in January. This suggests that the government's measures, such as the reintroduction of utility subsidies and a one-off tax rebate, may be helping to ease inflationary pressures.

The core CPI in Tokyo serves as a leading indicator of nationwide price trends in Japan. The national core CPI rose 3.2% in January, hitting a 19-month high, reflecting rising inflationary pressure. However, the BOJ has signaled its readiness to raise interest rates if price outlook continues to improve, indicating that it is monitoring inflation trends closely.

The government's steps to mitigate inflationary pressures in Tokyo have had some impact, but the effectiveness has varied over time. In August 2023, the core CPI in Tokyo rose 2.4% year-on-year, indicating that inflation remained a concern despite the government's efforts. However, in January 2024, the core CPI in Tokyo slowed down to 2.3% year-on-year, suggesting that the government's measures may have had some effect in easing inflationary pressures.

One of the key measures implemented by the government was the reintroduction of utility subsidies from August 2023. This move aimed to ease the burden on households from rising energy bills. However, the impact of this measure on inflation is not immediately apparent, as the effects of subsidies tend to be reflected in inflation data with a lag.

In addition to the utility subsidies, the government also implemented a one-off tax rebate for many households in June 2023. This measure was intended to provide immediate relief to consumers facing rising costs of living. However, the long-term impact of this measure on inflation is not clear, as it is difficult to quantify the extent to which the tax rebate influenced consumer spending and inflation.

Tokyo's inflation trends have been driven by several key factors, which are likely to continue influencing the inflation rate in the coming months. These factors include energy prices, wage increases, food prices, service prices, and the exchange rate. The reinstatement of government subsidies for electricity and gas bills in August 2023 has been a significant factor driving inflation in Tokyo. As the subsidies are set to expire in March 2024, energy prices are expected to increase, further pushing up inflation. However, the government's decision to reintroduce the subsidies from January to March 2024 may mitigate this impact temporarily.

Wage increases have also contributed to inflation in Tokyo, as the labor market remains relatively tight, with the jobs-to-applicants ratio at 1.24. Wage increases are likely to continue, supporting consumption and inflation, although the pace may slow down as the labor market cools. Food prices have been volatile due to weather conditions and supply chain disruptions, but they are expected to stabilize in the coming months as supply chain issues ease and weather conditions improve. Service prices have been relatively slow to rise in Tokyo, but as the economy recovers and demand for services increases, service prices are likely to rise, contributing to overall inflation.

The weak yen has fueled inflationary pressure via higher import costs, and further yen weakness could exacerbate inflation, particularly if the exchange rate approaches 160 against the dollar. This could lead to speculation of possible intervention by Japan's government and a January rate hike by the BOJ.

In the coming months, Tokyo's inflation trends are likely to be influenced by the following factors:

* The expiration of energy subsidies in March 2024 and their potential reintroduction may lead to a temporary increase in energy prices, pushing up inflation.
* Wage increases are expected to continue, supporting consumption and inflation, although the pace may slow down.
* Food prices are likely to stabilize as supply chain issues ease and weather conditions improve.
* Service prices are expected to rise as the economy recovers and demand for services increases.
* The exchange rate will continue to influence inflation, with further yen weakness potentially exacerbating inflationary pressure.

These factors suggest that Tokyo's inflation trends may remain relatively stable in the coming months, with a potential increase in energy prices offset by stabilizing food prices and a continued recovery in the service sector. However, the evolution of these factors will depend on various economic and political developments, as well as the BOJ's monetary policy decisions.



In conclusion, Tokyo's inflation rate is expected to have eased in February, reflecting the government's steps to mitigate inflationary pressures. However, the effectiveness of these measures has varied over time, and the long-term impact on inflation remains uncertain. Tokyo's inflation trends are likely to be influenced by several key factors in the coming months, including energy prices, wage increases, food prices, service prices, and the exchange rate. The BOJ will continue to monitor inflation trends closely and adjust its monetary policy as needed to maintain a stable and sustainable economy.