Core CPI in Japan Up 2.9% in October... BOJ Financial Normalization Likely to Take Time

Energy Subsidy Cuts Drive Price Increases
Service and Accommodation Fees Also Push Prices Up
Modest Rise Falls Short of Market Expectations
BOJ Monetary Policy Normalization Likely to Take Time

Excluding fresh food, Japan's Consumer Price Index (CPI) for October rose 2.9% compared to the same month last year, marking a slight increase in the rate of rise after four months. However, since this figure fell short of the market forecast (3.0%), there are indications that it will take some time before the Bank of Japan (BOJ) normalizes its monetary policy.

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Japan's Ministry of Internal Affairs and Communications announced that the core CPI in October rose 2.9% year-on-year, slightly expanding from the previous month's increase of 2.8%. The core CPI peaked at 3.4% in March, then declined, falling below 3% for the first time in 13 months to 2.8% in September, before rebounding this month.

The rise in prices last month is analyzed to be due to a reduction in government subsidies for electricity and gas charges. The Ministry stated that in September, subsidies lowered the core CPI growth rate by 1 percentage point, but with the reduction in support this month, the price suppression effect decreased to 0.5 percentage points.

Service accommodation fees also drove the overall price increase. The service price inflation rate recorded 2.1%, the highest in 30 years since October 1993. The Nihon Keizai Shimbun explained that there is a trend of passing on increases in food and labor costs to service prices. Accommodation fees rose 42.6% year-on-year due to an increase in tourists, with a significant 17.9% rise compared to the previous month.

However, since inflation did not rise as much as market expectations, there is a forecast that it will take some time before the BOJ moves to normalize monetary policy. The BOJ has set a sustained inflation rate in the 2% range as a prerequisite for ending its monetary easing policy. Although the core CPI has recorded inflation above 2% for 18 consecutive months, the BOJ expects the upward trend to weaken next year due to the impact of a global economic slowdown. The BOJ's judgment is that to end monetary easing, a price increase rate matching market expectations must be sustained over a long period.

Bloomberg explained, "The BOJ expects the October CPI to have risen slightly due to the impact of government energy subsidy policies, but anticipates downward pressure again for the time being," adding, "The BOJ is closely monitoring whether the inflation trend, reflecting wage increases, can continue strongly in the future."

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