Japan’s inflation slows sharply on subsidies before BoJ meet

The pace of Japan’s consumer inflation slowed abruptly on the back of government utility subsidies while remaining well above the Bank of Japan’s target hours before authorities are set to decide policy.

Consumer prices excluding fresh food rose 2.7% from a year earlier in August, slowing from a 3.1% gain in the previous month, the Ministry of Internal Affairs and Communications reported Friday.

The slowest pace since November, it matched the median estimate of economists who predicted the resumption of subsidies to help households cope with record heat would exert a drag on the main gauge. The overall gauge slowed to 2.7% from 3.1%.

Still, a deeper price measure that also strips out energy advanced 3.3%, only slightly below the rate in the previous month, and matching analysts’ forecast.

The CPI data aren’t likely to shift the outcome of the BOJ’s policy decision on Friday as policymakers are widely expected to stand pat. With no market ructions resulting from the highly anticipated rate cut by the Federal Reserve earlier this week, traders will now wait to see whether Governor Kazuo Ueda hints during his press conference that his board is getting closer to raising the rate.

“These CPI data are likely within the expectation of the BOJ and won’t affect today’s policy decision, as they are more focused on economic risks coming from tariffs while underlying inflation continues to improve,” said Taro Saito, head of economic research at NLI Research Institute. “They are looking for the right timing for a rate hike, and that is likely to come around January once they see economic risks have receded.”

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