Tokyo Inflation Set to Rise in January as Energy Costs Bite

Tokyo's inflation rate is expected to pick up in January, driven by surging energy costs, according to a Reuters poll of economists. The core consumer price index (CPI), which excludes volatile fresh food items, is forecast to rise 3.1 percent year-on-year in January, up from 2.8 percent in September. This acceleration in inflation is primarily due to the expiration of government subsidies for electricity and gas, which has led to a sharp increase in energy prices.



The headline inflation rate surged to 2.6 percent year-on-year in November, primarily driven by energy costs. Energy prices surged 24.2 percent from a year earlier in September, and this trend is expected to continue in the coming months. The recent depreciation of the yen is also poised to further elevate costs for imported fuel and food, putting additional upward pressure on inflation.

The Bank of Japan (BOJ) has taken the view that the inflation figure temporarily reaching its 2 percent target will not prompt it to shift from its ultralow rate policy. However, the accelerating inflation rate may put pressure on the BOJ to reassess its stance. If the BOJ decides to respond, it could potentially tighten its monetary policy by raising interest rates, which could have implications for the yen and Japanese bond yields.

The government is planning to craft a comprehensive economic package by the end of October to mitigate the impact of rising prices on businesses and households. The Tokyo inflation data is used as a nationwide indicator, and economists expect national core CPI to rise 3 percent as early as September. The government may consider implementing additional measures in the upcoming economic package, such as extending subsidies, providing targeted tax cuts or rebates, addressing supply chain disruptions, and encouraging wage increases.

In conclusion, Tokyo's inflation is expected to rise in January, driven by surging energy costs and a weak yen. The BOJ may face pressure to reassess its monetary policy stance, while the government is planning to implement measures to mitigate the impact of rising prices on businesses and households. The upcoming economic package may include additional measures to address the rising inflation rate and support the economy.