Tokyo's core consumer price index moderated in February, with annual core inflation registering a 1.8% gain compared with a 2.0% rise in January, official data showed on Friday. The reading - which excludes volatile fresh food prices - brought the rate below the Bank of Japan's 2% inflation target for the first time since October 2024.
The outcome broadly tracked the BOJ's forecast that inflation would ease temporarily as authorities' fuel subsidies take effect and the upward base effect from last year's price spike fades. At the same time, the central bank continues to expect a return to stronger inflation on the back of sustained wage gains, according to the projection referenced in the data release.
Analysts pay particular attention to measures that strip out both fresh food and fuel. That narrower index, considered by many as a better gauge of underlying price momentum, rose 2.5% in February from a year earlier, after a 2.4% increase in January. The divergence between the broader core CPI reading and the fuel-and-food-stripped measure highlights how temporary components are influencing headline readings.
Policymakers at the BOJ have already tightened monetary policy, lifting the policy rate to 0.75% in December - the highest level in three decades. The move was framed as a decisive step away from the long period of very loose monetary support, reflecting the bank's view that Japan is moving toward sustainably achieving its 2% inflation goal.
Despite the recent cooling in Tokyo's core inflation, the central bank has signalled it remains prepared to raise interest rates further should its economic and price forecasts come to pass. That stance underscores the delicate balance facing BOJ communications: explaining a temporary dip in inflation while maintaining credibility around the path to the target if wage momentum persists.
Contextual note - The February figures showed a 1.8% year-on-year rise in the Tokyo core CPI, down from 2.0% in January. The fuel-and-food-stripped index rose 2.5% in February, up from 2.4% in January. The BOJ's policy rate was raised to 0.75% in December.