Data released by Japan's Ministry of Internal Affairs and Communications on Friday showed that Tokyo's core CPI, which excludes fresh food, rose by 3.4% year-on-year. This figure not only surpasses the 2.4% recorded in March but also exceeds the market expectation of 3.2%. It marks the first time Tokyo's core inflation has exceeded 3% since July 2023, suggesting that nationwide price pressures may intensify further.
This price increase is driven by several factors: firstly, the government has reduced subsidies for electricity and gas bills, leading to increased energy-related expenditures. Secondly, from April 1st, prices for multiple food items were raised at the start of Japan's new fiscal year, further adding to the household financial burden. Simultaneously, a rise in service sector prices indicates that inflation is spreading to a broader range of areas.
Economists pointed out: "Tokyo prices, as a leading indicator of national inflation trends, could force the Bank of Japan to reevaluate its accommodative stance if they continue to rise."
The broader core CPI has already increased to 3.1%, indicating a shift in Japan's inflation structure. The core metric that excludes fresh food and energy prices, which reflects underlying inflation trends more accurately, also showed a marked acceleration. This metric rose by 3.1% in April compared to a previous figure of 2.2%, a significant increase and a signal of medium to long-term price momentum closely monitored by the Bank of Japan.
This indicates that current inflation is no longer driven solely by cost-push factors. Demand-side pressures, especially in the service, healthcare, and education "non-tradable goods" sectors, are gradually becoming the primary inflation drivers.
Besides domestic factors, the Bank of Japan also faces external risks. The recent round of tariffs implemented by the United States may suppress global demand, particularly exerting pressure on Japan's export industry, affecting corporate investment and wage growth. The market generally expects the Bank of Japan to maintain short-term rates at 0.5% during its policy meeting from April 30th to May 1st to address the complex external environment and domestic economic pressures.
Additionally, market insiders have disclosed that the Bank of Japan might downgrade economic growth forecasts and warn of the risks posed by the escalation of US tariff measures. Analysts believe that if the Bank of Japan hastily raises interest rates, it may dampen already weak domestic demand, exacerbating the risk of "stagflationary inflation."
