Tokyo Inflation Slows a Tad More Than Expected on Subsidy Impact

Tokyo's inflation rate eased more than expected in February, as government subsidies for energy bills tempered price increases. Consumer prices excluding fresh food rose 2.2% from a year earlier, government data showed Friday, compared to the 2.3% rise expected by economists and the 2.5% increase in January. The core inflation rate, which strips out fresh food and energy prices, held steady at 1.9%.

The slower-than-expected inflation rate may curb expectations for additional rate hikes by the Bank of Japan (BOJ), which has been gradually tightening monetary policy to control inflation. The yen weakened to around 150.15 versus the dollar from around 149.40 at the Tokyo stock market close on Thursday but later regained some ground to stand at 149.60 to the dollar.



The BOJ has been raising interest rates to keep inflation in check, with the first hike in July 2024. However, the central bank has been cautious in its approach, balancing the need to control inflation with the desire to support economic growth. In August 2024, BOJ Governor Kazuo Ueda indicated that the bank would proceed cautiously to avoid stifling economic growth.

The slower inflation rate in Tokyo may be a temporary phenomenon, as the full impact of government subsidies kicks in. Once the subsidies end, inflation may pick up again, depending on how businesses pass on costs to consumers and the government's plans for phasing out these subsidies. The BOJ will need to monitor these factors closely to ensure that its monetary policy remains effective and appropriate.

In conclusion, Tokyo's inflation rate eased more than expected in February, as government subsidies for energy bills tempered price increases. The slower-than-expected inflation rate may curb expectations for additional rate hikes by the BOJ, but the central bank will need to monitor the impact of subsidies and other factors closely to ensure that its monetary policy remains effective and appropriate.