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Japan Inflation Cools to Two-Year Low Amidst Price Relief
20 Feb
Summary
- Core inflation in January slowed to 2% year-on-year, the lowest in two years.
- Government fiscal measures and subsidies contributed to easing price pressures.
- The central bank is expected to proceed with rate hikes despite the slowdown.
Consumer price growth in Japan has moderated, with the key inflation gauge, excluding fresh food, slowing to 2% year-on-year in January. This marks the slowest increase observed since January 2024. The deceleration is partly attributed to Prime Minister Sanae Takaichi's fiscal policies, designed to alleviate the cost of living.
Government initiatives, such as fuel cost subsidies and tax measures, led to a 5.2% decrease in energy prices during January. Additionally, the rate of price increases for food, excluding fresh produce, slowed due to comparative effects from the previous year when costs had surged.
Despite the overall easing, inflation excluding both fresh food and energy remained elevated at 2.6%, staying above the Bank of Japan's 2% target. Overall inflation, including all components, dropped to 1.5%, falling below 2% for the first time since March 2022.
These figures are not expected to deter the Bank of Japan from its plans to raise interest rates. Authorities have consistently signaled their focus on underlying inflation trends rather than temporary factors. Many economists anticipate the next rate hike could occur as early as April 2026, with a possibility of a move on March 19, 2026.
The Japanese yen weakened against the dollar following the release of the inflation data, trading around 155.20 from approximately 154.98.
