Tokyo Inflation Likely to Miss BOJ Target: Reuters Poll

Tokyo's core consumer price index (CPI) is expected to undershoot the Bank of Japan's (BOJ) 2% target for the first time in five months, according to a Reuters poll. This slowdown in inflation raises questions about the BOJ's monetary policy decisions and the factors contributing to this development.

The median forecast of 18 economists showed that Tokyo's core CPI, a leading indicator of nationwide price trends, was expected to rise 1.7% from a year earlier in October. This follows a 2.0% rise in September and marks the first time the data misses the BOJ's target since May's 1.9% growth. The nationwide core CPI slowed to a 2.4% rise in September, further highlighting the cooling inflation trend.

Takeshi Minami, chief economist at Norinchukin Research Institute, attributed the weakening momentum of food price hikes and sluggish consumer spending recovery to the slowdown in inflation. Despite considerable wage growth, the recovery pace of consumer spending remains sluggish, which may discourage companies from raising prices further.

Energy prices and the yen's recent rebound may also play a role in the expected slowdown of Tokyo's core CPI. As energy prices stabilize and the yen strengthens, the upward pressure on inflation may ease, contributing to the slowdown in core CPI growth.

The BOJ is widely expected to keep interest rates unchanged at its October meeting. However, the slowdown in inflation may influence the BOJ's projections for future inflation rates and its decision on further interest rate hikes. The BOJ will need to balance the need to maintain its 2% inflation target with the potential negative impacts of further rate hikes on economic growth, given the global economic uncertainties.

In conclusion, the expected slowdown in Tokyo's core CPI raises concerns about the BOJ's ability to maintain its 2% inflation target. The weakening momentum of food price hikes and consumer spending recovery, along with energy prices and the yen's recent rebound, contribute to this development. The BOJ will need to carefully consider these factors when making monetary policy decisions in the face of global economic uncertainties.