| Consensus | Consensus Range | Actual | Previous | |
|---|---|---|---|---|
| CPI - Y/Y | 2.0% | 1.8% to 2.5% | 1.6% | 2.4% |
| Ex-Fresh Food - Y/Y | 1.9% | 1.7% to 2.2% | 1.6% | 2.1% |
| Ex-Fresh Food & Energy - Y/Y | 3.4% | 3.1% to 3.5% | 3.1% | 3.5% |
Highlights
Consumer inflation in Tokyo, the leading indicator of the national average, eased at a much faster pace than expected in January in all three key measures as food price markups lost more steam, utility subsides continued to trim energy bills and hotel charges slowed sharply after their recent surge on base-year effects.
The core CPI (excluding fresh food), the key measure for the Bank of Japan's policy decision, posted a 22-month low of a 1.6 percent rise on year, slowing further from a 2.1 percent gain in December. The year-over-year rise in the total CPI also dipped a 22-month low of 1.6 percent from 2.4 percent.
This shows consumer inflation in the capital has eased back to the period just before the world felt the full impact of heightened geopolitical risks. Russia's invasion of Ukraine in late February 2022 triggered a spike in energy and commodities prices in the following months.
The core-core CPI (excluding fresh food and energy) annual rate moderated to an 11-month low of 3.1 percent from 3.5 percent, slowing further from a 41-year high of 4.0 percent hit in July 2023. The recent peak for this measure came later as it is not influenced by surging energy costs.
Service prices rose twice as fast as goods prices but they both slowed from December. If firms continue to pass through higher labor costs to sales prices, it could lead to more sustained wage hikes, which in turn would prompt Bank of Japan policymakers to unwind monetary policy stimulus later this year.
At its Jan. 22-23 meeting, the BoJ board retained its guidance that it will"patiently continue with monetary easing" in order to"achieve the price stability target of 2 percent in a sustainable and stable manner, accompanied by wage increases." Under the yield curve control framework, it maintained the targets of minus 0.1 percent for the short-term policy rate and"around zero percent" for the 10-year bond yield.
Econoday's Relative Performance Index stood minus 14, below zero, which indicates the Japanese economy is performing slightly worse than expected after outperforming with a small margin recently. Excluding the impact of inflation, the RPI was at minus 17.
The government said its monthly economic report this week that Japan still needs monetary and fiscal stimulus and growth strategies to keep itself from falling back into deflation, repeating its request first made in May 2022 that the BoJ should"achieve the price stability target of 2% in a sustainable and stable manner, accompanied by wage increases."
The core CPI (excluding fresh food), the key measure for the Bank of Japan's policy decision, posted a 22-month low of a 1.6 percent rise on year, slowing further from a 2.1 percent gain in December. The year-over-year rise in the total CPI also dipped a 22-month low of 1.6 percent from 2.4 percent.
This shows consumer inflation in the capital has eased back to the period just before the world felt the full impact of heightened geopolitical risks. Russia's invasion of Ukraine in late February 2022 triggered a spike in energy and commodities prices in the following months.
The core-core CPI (excluding fresh food and energy) annual rate moderated to an 11-month low of 3.1 percent from 3.5 percent, slowing further from a 41-year high of 4.0 percent hit in July 2023. The recent peak for this measure came later as it is not influenced by surging energy costs.
Service prices rose twice as fast as goods prices but they both slowed from December. If firms continue to pass through higher labor costs to sales prices, it could lead to more sustained wage hikes, which in turn would prompt Bank of Japan policymakers to unwind monetary policy stimulus later this year.
At its Jan. 22-23 meeting, the BoJ board retained its guidance that it will"patiently continue with monetary easing" in order to"achieve the price stability target of 2 percent in a sustainable and stable manner, accompanied by wage increases." Under the yield curve control framework, it maintained the targets of minus 0.1 percent for the short-term policy rate and"around zero percent" for the 10-year bond yield.
Econoday's Relative Performance Index stood minus 14, below zero, which indicates the Japanese economy is performing slightly worse than expected after outperforming with a small margin recently. Excluding the impact of inflation, the RPI was at minus 17.
The government said its monthly economic report this week that Japan still needs monetary and fiscal stimulus and growth strategies to keep itself from falling back into deflation, repeating its request first made in May 2022 that the BoJ should"achieve the price stability target of 2% in a sustainable and stable manner, accompanied by wage increases."
Market Consensus Before Announcement
Consumer inflation in Tokyo, the leading indicator of the national average, is forecast to ease further in January in all three key measures as food and beverage suppliers have largely passed high import costs onto customers and utility subsides continue to depress overall energy costs.
The core CPI (excluding fresh food), the key measure for the BoJ's policy decision, is expected to post a 19-month low of a 1.9 percent rise on year, slowing from 2.1 percent in December. The year-over-year rise in the total CPI is also seen falling to a 21-month low of 2.0 percent from 2.4 percent. The core-core CPI (excluding fresh food and energy) annual rate is expected to ease to a nine-month low of 3.4 percent from 3.5 percent.
Services costs are on a clear uptrend on widespread labor shortages, which should lead to lifting of the negative interest rate by the Bank of Japan later this year if officials can confirm sustained wage hikes and smaller firms' ability to reflect higher labor costs in sales prices.
The core CPI (excluding fresh food), the key measure for the BoJ's policy decision, is expected to post a 19-month low of a 1.9 percent rise on year, slowing from 2.1 percent in December. The year-over-year rise in the total CPI is also seen falling to a 21-month low of 2.0 percent from 2.4 percent. The core-core CPI (excluding fresh food and energy) annual rate is expected to ease to a nine-month low of 3.4 percent from 3.5 percent.
Services costs are on a clear uptrend on widespread labor shortages, which should lead to lifting of the negative interest rate by the Bank of Japan later this year if officials can confirm sustained wage hikes and smaller firms' ability to reflect higher labor costs in sales prices.
Definition
The Consumer Price Index (CPI) is a measure of the average price level of a fixed basket of goods and services purchased by consumers. Annual changes in the CPI represent the rate of inflation.
The Tokyo CPI data covers consumer prices in the capital’s 23 wards located in the eastern part of the Tokyo Prefecture but excludes the 26 cities and other smaller municipalities that occupy larger areas in other parts of the province (islands in the Pacific Ocean are also excluded). It is a leading indicator of the national average CPI as it is released about a month ahead of the national data. The survey for the Tokyo CPI is conducted on one day around the 12th (Wednesday, Thursday or Friday) each month and its results are released toward the end of the same month or early in the following month.
The national CPI has a larger energy weight of 712 out of 10,000, compared to 470 in the Tokyo data, because the shares of consumption of electricity, gasoline and heating oil tend to be bigger in the rural areas. There is only a slight difference in the weighting of food excluding perishables between the national data (2,230) and the Tokyo data (2,144).
The Tokyo CPI data covers consumer prices in the capital’s 23 wards located in the eastern part of the Tokyo Prefecture but excludes the 26 cities and other smaller municipalities that occupy larger areas in other parts of the province (islands in the Pacific Ocean are also excluded). It is a leading indicator of the national average CPI as it is released about a month ahead of the national data. The survey for the Tokyo CPI is conducted on one day around the 12th (Wednesday, Thursday or Friday) each month and its results are released toward the end of the same month or early in the following month.
The national CPI has a larger energy weight of 712 out of 10,000, compared to 470 in the Tokyo data, because the shares of consumption of electricity, gasoline and heating oil tend to be bigger in the rural areas. There is only a slight difference in the weighting of food excluding perishables between the national data (2,230) and the Tokyo data (2,144).
Description
The CPI has been in the spotlight as Japan struggled to make its way out of deflation. It is now closely monitored because the recent spike in energy and commodity markets and supply chain constraints during the global pandemic boosted Japan’s inflation rate to the highest in over four decades in 2022.
The report tracks changes in the price of a basket of goods and services that a typical Japanese household might purchase. The preferred measure is the year over year percent change. Markets will typically pay more attention to the core measure that excludes only fresh food because volatile food prices can distort overall CPI. A second core measure that excludes energy as well is also available. As the most important inflation indicator, the CPI data are closely monitored by the Bank of Japan. Rising consumer prices may prompt the BoJ to raise interest rates in order to manage inflation and slow economic growth. Higher interest rates make holding the yen more attractive to foreign investors, and this higher level of demand will place upward pressure on the value of the yen.
An investor who understands how inflation influences the markets will benefit over those investors that do not understand the impact. Inflation is an increase in the overall prices of goods and services. The relationship between inflation and interest rates is the key to understanding how indicators such as the CPI influence the markets and your investments.
Inflation (along with various risks) basically explains how interest rates are set on everything from your mortgage and auto loans to government securities. As the rate of inflation changes and as expectations on inflation change, the markets adjust interest rates. The effect ripples across stocks, bonds, commodities and your portfolio, often in a dramatic fashion.
By tracking inflation, whether high or low, rising or falling, investors can anticipate how different types of investments will perform. Over the long run, the bond market will rally (fall) when increases in the CPI are small (large). The equity market rallies with the bond market because low inflation promises low interest rates and is good for profits.
The report tracks changes in the price of a basket of goods and services that a typical Japanese household might purchase. The preferred measure is the year over year percent change. Markets will typically pay more attention to the core measure that excludes only fresh food because volatile food prices can distort overall CPI. A second core measure that excludes energy as well is also available. As the most important inflation indicator, the CPI data are closely monitored by the Bank of Japan. Rising consumer prices may prompt the BoJ to raise interest rates in order to manage inflation and slow economic growth. Higher interest rates make holding the yen more attractive to foreign investors, and this higher level of demand will place upward pressure on the value of the yen.
An investor who understands how inflation influences the markets will benefit over those investors that do not understand the impact. Inflation is an increase in the overall prices of goods and services. The relationship between inflation and interest rates is the key to understanding how indicators such as the CPI influence the markets and your investments.
Inflation (along with various risks) basically explains how interest rates are set on everything from your mortgage and auto loans to government securities. As the rate of inflation changes and as expectations on inflation change, the markets adjust interest rates. The effect ripples across stocks, bonds, commodities and your portfolio, often in a dramatic fashion.
By tracking inflation, whether high or low, rising or falling, investors can anticipate how different types of investments will perform. Over the long run, the bond market will rally (fall) when increases in the CPI are small (large). The equity market rallies with the bond market because low inflation promises low interest rates and is good for profits.
