Tokyo inflation hits 2.7% in September as some subsidies come to an end

Tokyo's consumer inflation reached 2.7% in September, marking the first time it surpassed 2% since December 2025, according to the latest data. The price of bento lunches surged by 28.1% compared to the previous year, contributing significantly to the inflation rate. Despite this, core inflation, which excludes fresh food, also increased by 2.7%, exceeding market expectations of 2.4%.

This surge in prices could prompt the Bank of Japan to consider raising interest rates, as the 2% target for core inflation is a key focus. One factor driving up costs was the termination of government support measures, including the suspension of the basic water fee for customers. As a result, water utility prices rose by 65.6% year-on-year in September.

The Tokyo Consumer Price Index, which encompasses the city's 23 wards, serves as a crucial indicator for nationwide price trends. The Bank of Japan (BOJ) has been closely monitoring inflation, wary of it surpassing the 2% core inflation target. Governor Kazuo Ueda previously stated that the bank's role is to promote price growth, especially after the period of deflation Japan experienced.

Currently, the BOJ's focus is on maintaining inflation at the 2% level. In a new phase of policy management, Ueda believes the bank has entered a new phase. Market expectations for a BOJ rate increase in December were at 82% as of Friday morning, unchanged from Thursday afternoon, according to data from Totan ICAP. The yen remained relatively stable at ¥157.8 to the dollar on Friday afternoon.

The central bank is set to hold a two-day policy meeting on October 29 and 30, but the probability of multiple interest rate increases remains low, with just a 17% chance according to market expectations. The BOJ raised its policy rate to 1.25% from 1% in September, and analysts suggest the bank may need time to evaluate the impact of this increase.