Tokyo Inflation Holds Above BoJ Target, Keeping Focus on Policy Path

Tokyo consumer prices rose in August, underscoring persistent inflationary pressures that keep the Bank of Japan (BoJ) on track for further policy normalization, even as officials tread cautiously in the face of external risks.

Tokyo CPI in Line with Expectations

Headline Tokyo CPI increased 2.6% y/y in August, matching forecasts but slowing from 2.9% in July. Core CPI, excluding fresh food, rose 2.5% y/y, also easing from 2.9%. Meanwhile, the so-called “core-core” measure that strips out both fresh food and energy — a closely watched gauge of underlying price trends — slightly down to 3.0% y/y.

• Headline Tokyo CPI – 2.6% YoY (vs prior 2.9%)
• Core CPI (exclude fresh food) – 2.5% YoY (vs prior 2.9%)
• Core-Core CPI (exclude fresh food and energy) – 3.0% YoY (vs prior 3.1%)

The data highlight a key divergence: while headline inflation shows signs of moderation, underlying price pressures remain elevated, suggesting that inflation is becoming more entrenched in the Japanese economy.

Comparison With National CPI

The figures trend on July’s national CPI report earlier, which showed headline inflation at 3.1% y/y, core CPI at 3.1%, and core-core at 3.4%. Compared with the national trend, despite Tokyo’s data point to slower underlying price momentum, but both the “core-core” suggest the view that inflation is not simply energy-driven but supported by wage gains and service price increases.

Policy Implications for the BoJ

The BoJ raised its short-term policy rate to 0.5% in January, marking its first step away from negative rates. Since then, Governor Kazuo Ueda has stressed a cautious approach, warning of downside risks from U.S. tariffs and global demand headwinds.

Still, with inflation holding above the BoJ’s 2% target for more than three years and nominal wages showing steady increases, the case for gradual tightening remains intact.

Board member Nakagawa yesterday reiterated the central bank’s data-dependent stance, noting that the upcoming Tankan survey due September 30 – October 1 will be a key input for the policy outlook.

USD/JPY Holds Tight Range as Markets Weigh BoJ Path and Fed Outlook

Despite growing expectations for another rate hike later this year, market participants remain divided on the BoJ’s next move

The yen remained confined within a tightening range against the dollar on post CPI, as investors assessed the latest Tokyo CPI figures and their implications for Bank of Japan (BoJ) policy.

For now, USD/JPY continues to trade within its established band, reflecting both domestic and U.S. drivers.

USD/JPY, Day Chart | Source: Ultima Market MT5

From a technical perspective, USD/JPY price action has consolidated, yet the bias leans toward pressure below the 148–150 zone. A decisive break under 147 support could open the way for further downside, while resistance remains capped around 150.

Traders are also watching the Fed’s stance on U.S. rates, which will act as the key external catalyst for the pair’s direction.

Disclaimer

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