Japan's inflation rate has shown signs of cooling in September, just ahead of a significant Bank of Japan meeting scheduled for later this month. The headline consumer price index (CPI) increased by 2.5% year-on-year in September, which is a decrease from the 3% increase recorded in August, as reported by the Statistics Bureau.
In terms of core CPI, which excludes fresh food prices, the increase was 2.4% year-on-year, down from 2.8% in August. This trend indicates a gradual easing of inflationary pressures. Notably, the core-core CPI, which removes fresh food and certain energy expenses from the equation, rose by 2.1% in September compared to the previous year, marking a slight increase from the 2% rise seen in August, as per official figures.
Service prices, deemed crucial by the Bank of Japan for assessing inflation trends, registered a modest increase of 1.3% compared to a year earlier, which is a decrease from the 1.4% gain witnessed in August. The inflation rate in Japan witnessed a surge during the pandemic era, peaking at 4.2% year-on-year in January 2023 for the core CPI.
Although the rate has since moderated, it has stubbornly remained above the Bank of Japan's target of 2%. In recent months, the Bank of Japan has tightened its monetary policy, adjusting from near-zero negative interest rates on short-term deposits earlier in the year to a current rate of 0.25% as of August.
Additionally, the central bank has increased its cap on 10-year Japanese government bond (JGB) yields from near zero to 1%. Despite these changes, Bank of Japan policymakers have emphasized the need for sufficient demand to raise real wages and boost consumption, which are crucial for fostering more sustainable and robust real economic growth.
Looking ahead to 2024, the Bank of Japan has signaled its intent to further "normalize" monetary policy. This will likely involve raising interest rates into positive territory and reducing the scale of its quantitative easing measures, specifically in relation to the purchase of JGBs. The upcoming meeting of the nation's central bank is set for October 30 through 31..