MNI BRIEF: Japan May Tokyo Core CPI Rises 3.6% Vs. April 3.4%

Tokyo’s year-on-year core inflation rate accelerated to 3.6% in May from 3.4% in April, remaining above the Bank of Japan’s 2% target for the seventh consecutive month, data from the Ministry of Internal Affairs and Communications showed on Friday.

The May figure marked the highest level since January 2023, when inflation hit 4.3%, driven largely by a 6.9% rise in food prices excluding perishables, up from 6.4% in April. This was despite a slightly smaller increase in energy prices, which rose 8.7% compared to 9.4% the previous month.

Core-core CPI, which strips out fresh food and energy and is closely watched by the BOJ as a gauge of underlying inflation, rose 3.3% year-on-year in May, accelerating from 3.1% in April and staying above 2% for the third straight month.

Processed food prices, which are sensitive to economic activity, climbed 4.7% in May, up from 4.1% in April. Service prices also increased 2.2% year-on-year, compared with 2.0% in the previous month.

The data supports the BOJ’s view that inflation remains on track and reinforces the case for a rate hike path. (See MNI POLICY: BOJ Weighs Trade Impacts, Oct Hike Potential) 

However, downside risks to the economy stemming from U.S. trade policy, highlighted in the BOJ’s latest Outlook Report, are likely to delay any immediate move to tighten policy.