| Consensus | Consensus Range | Actual | Previous | |
| CPI - Y/Y | 1.6% | 1.5% to 1.7% | 1.4% | 1.5% |
| Ex-Fresh Food - Y/Y | 1.5% | 1.4% to 1.7% | 1.3% | 1.5% |
| Ex-Fresh Food & Energy - Y/Y | 1.9% | 1.6% to 2.0% | 1.6% | 1.9% |
Highlights
Consumer inflation in Tokyo, a leading indicator of the national trend, unexpectedly eased in all three key measures in May, staying well below the Bank of Japan's 2% target as fuel subsidies that were renewed in late March have capped gasoline prices while free daycare services in the Tokyo metropolitan area that took effect last year and had a full impact in April also helped. Overall energy costs showed a smaller dip after the phaseout of three-month electricity and gas heating subsidies that ended in March. The Tokyo government also began a four-month program to wave base city water charges during the summer, from May for some households and June for others.
The core measure (excluding fresh food) rose 1.3% on year after the annual rate eased to a four-year low of 1.5% in April from 1.7% in March, well below the recent peak of 3.6% hit in May 2025 when processed food price hikes were sharp in the aftermath of domestic rice shortages. The annual rate of the total CPI also moderated to 1.4% from 1.5% in April and 1.4% in March. The year-on-year increase in the core-core CPI (excluding fresh food and energy) fell sharply to 1.6% after moderating to 1.9% in April from 2.3% in March.
Bank of Japan policymakers will discuss whether it is necessary to raise the policy interest rate at their June 15-16 meeting as part of normalization while consumer inflation is easing and there remains uncertainty over how elevated energy and other costs amid the Mideast conflict will impact economic activity. Some economists expect Japan's Q2 GDP to post a slight contraction.
At its last meeting on April 27-28, the BOJ's nine-member board decided in a 6 to 3 vote to leave the target for the overnight interest at 0.75% after leaving it unchanged in an 8 to 1 vote at its previous meetings in March and January and conducting its first rate hike in six meetings in December by raising it by 25 basis points (0.25 percentage point) to a 30-year high in a unanimous vote.
The bank pointed to upside risks to inflation, given that underlying CPI inflation is approaching the bank's 2% target and firms' behavior is shifting more toward raising wages and prices.
In its quarterly Outlook Report issued after the meeting, the bank brought forward the timing of hitting the 2% inflation target, saying between the second half of fiscal 2026 and fiscal 2027, underlying CPI inflation and the rate of increase in the core CPI (excluding fresh food) should increase gradually and will be at a level that is generally consistent with the price stability target. For years, the bank continued to peg the timing to the second half of its projection period (in this case, from fiscal 2026 through fiscal 2028).
Details:
Japan May Tokyo core CPI (ex-fresh food) +1.3% y/y (Apr +1.5%), median forecast +1.5% (range: +1.4% to +1.7%)
Japan May Tokyo core CPI annual rate at +1.3%, lowest since 0.8% in Mar 2022
Japan May Tokyo total CPI +1.4% y/y (Apr +1.5%); median forecast +1.6% (range: +1.5% to +1.7%)
Japan May Tokyo core-core CPI (ex-fresh food, energy) +1.6% y/y (Apr +1.9%); median forecast +1.9% (range: +1.6% to +2.0%)
Japan May Tokyo CPI moderates on easing processed food markups, summertime free city water base charges, free daycare services
Japan May Tokyo CPI: energy -3.7% y/y (-0.20 point contribution), vs. -4.6% (-0.24 point) in Apr
Japan May Tokyo CPI: processed food +4.1% (+0.98 point) vs. +4.6% (+1.09 point) in Apr
Market Consensus Before Announcement
Consumer inflation in Tokyo, a leading indicator of the national trend, is forecast to be little changed on the year in May from a month earlier, but key measures are expected to remain below or near the Bank of Japan’s 2 percent inflation target.
Tokyo’s consumer price index is expected to present a mixed picture in May amid the expiration of government subsidies for gas and electricity and higher taxi fares introduced in late April. There were also signs that apartment rents rose during the month, which marks the start of Japan’s financial year. Still, easing energy and food prices likely capped inflation gains in the capital. The government also continued emergency subsidies aimed at keeping gasoline prices around ¥170 per liter.
In April, all three key CPI measures fell below the BOJ’s 2 percent target for the first time since October 2024, and the underlying slowdown in prices is expected to persist this month.
The core CPI, which excludes fresh food, is expected to rise 1.5 percent from a year earlier in May, unchanged from April, the lowest reading since March 2022. The overall CPI is forecast to rise 1.6 percent, up from a 1.5 percent rise in April. The core-core index, which excludes both fresh food and energy, is expected to increase 1.9 percent, unchanged from April when it hit its lowest level since February 2025.
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).
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.