Tokyo Inflation Drops Below Japan’s Central Bank Target for First Time Since October

Inflation in Japan's capital city has declined below the central bank's 2% goal for the first time in four months. The slowdown comes as food price increases have stabilized, providing some relief for consumers but creating challenges for monetary policy decisions.

TOKYO – Consumer price increases in Japan’s capital city decelerated during February as rising food costs began to level off, according to government data released Friday. The development provides some breathing room for residents but creates new challenges for the nation’s central bank as it considers future interest rate adjustments.

The figures align with Bank of Japan forecasts predicting that consumer price growth would temporarily ease due to government fuel subsidies and comparison effects from last year’s price surge, before picking up again as wages continue rising steadily.

Tokyo’s core consumer price index, which removes volatile fresh food costs, increased 1.8% compared to February of the previous year, down from January’s 2.0% rise, the data revealed. This marks the first time since October 2024 that the measure has fallen beneath the central bank’s 2% inflation goal. The result was slightly higher than economists’ median prediction of 1.7%.

A separate measure that excludes both fresh food and energy costs, considered by analysts to be a more reliable indicator of underlying inflation trends, climbed 2.5% year-over-year in February, up from 2.4% the previous month.

Japan’s central bank elevated interest rates to 0.75% in December, reaching a three-decade peak as officials took another significant step away from years of extensive monetary stimulus. The move reflected the bank’s confidence that the country is making progress toward consistently achieving its 2% inflation objective.

Bank officials have indicated their willingness to implement additional rate increases if their economic and inflation projections prove accurate.