Japan's core inflation holds near BOJ's target

TOKYO (Sep 18): Japan's core inflation held near the Bank of Japan's target, according to official data released Friday. Core inflation in August stood at 1.7 per cent, slightly lower than the previous month's 1.8 per cent, yet still close to the 2 per cent target set by the BoJ. The data, released by the internal affairs ministry, excludes volatile fresh food prices and was lower than market expectations that forecast the figure to remain steady.

Government support for gasoline and electricity fees, as well as energy and gas price surges due to the Middle East crisis, contributed to the slower pace of inflation. Energy and gas prices soared in recent weeks as oil prices remained above US$100 a barrel, with Japan's heavy reliance on oil imports exacerbating the situation.

Inflation was little changed in August, but there are indications that higher energy costs are feeding through and could push inflation above the BoJ's two percent target soon, according to Marcel Thieliant of Capital Economics. Some BoJ members have hinted at raising the key rate by 0.25 percentage points to 1.25 per cent, the highest level in over three decades, to counter the upward pressure on inflation from rising oil prices.

The government is implementing a massive stimulus package, extensive tax breaks on energy, and new measures to support consumption to mitigate the impact of inflation on household purchasing power. Tokyo also decided on a drastic two-year reduction in the consumption tax on food products, beginning in April 2027.