Investing.com-- Inflation in Japan’s capital fell as expected in December and was now within spitting distance of the Bank of Japan’s annual target, likely heralding a similar trend from nationwide inflation.
Tokyo core consumer price index (CPI) inflation- which excludes volatile fresh food prices, rose at an annualized 2.1% in December, data from the Statistics Bureau showed on Tuesday. The reading was in line with expectations, and fell further from the 2.3% seen in November.
Month-on-month core CPI inflation rose 0.1% from November.
A core reading that excludes both fresh food and fuel prices rose 3.5% in December, down from 3.6% in the prior month. The core reading is closely watched by the BOJ as a measure of underlying inflation, and has fallen steadily from 40-year highs hit earlier in 2023.
Headline Tokyo CPI inflation fell to an annualized 2.4% in December from 2.6% in the prior month.
The softer inflation reading was driven by minimal increases in food and fuel prices, which now appeared to be stabilizing in tandem with global supply chains. Strength in the Japanese yen through December also helped bring down import costs, which were a major contributor to inflation over the past two years.
The core CPI reading was now a smidge above the BOJ’s annual 2% target range, which the bank has cited as one of its key considerations to begin tightening its ultra-dovish policy.
The Tokyo CPI reading usually heralds a similar reading from nationwide inflation, which is due later in January. Tokyo is by far the biggest city in Japan, and is also the country’s biggest economic engine.
But Tuesday’s inflation reading does not reflect the impact of a devastating earthquake in Japan at the beginning of 2024, which is expected to ramp up inflation as the government rolls out more fiscal spending amid rebuilding efforts. The quake killed hundreds of people, and caused widespread disruption in central Japan.
Stimulus measures in the wake of the disaster are expected to potentially delay the BOJ’s plans to pivot away from its ultra-dovish stance. The yen had fallen sharply in the first week of 2024 tracking this notion.
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