Japan's overall inflation rate in October fell to 2.3%, the lowest level since January, down from 2.5% in September.

The core inflation rate excluding fresh food prices is 2.3%, down from 2.4% in September. However, this figure is slightly higher than the 2.2% expected by economists surveyed by Reuters.

The Bank of Japan has long stated that its goal is a 'virtuous cycle between wages and prices'.

Another independent inflation measure, the 'core-core' inflation rate, which excludes fresh food and energy prices, rose to 2.3%, up from 2.1% in September. The Bank of Japan is also tracking this indicator.

According to LSEG data, as of November 22, 55% of economists surveyed by Reuters expect the Bank of Japan to raise interest rates by 25 basis points at the December meeting, which would bring the central bank's benchmark policy rate to 0.5%.

Takeshi Minami, an economist at the Norinchukin Research Institute, stated: 'Aside from electricity and gas, inflation remains stable, partly due to rising import costs and general consumption conditions. I believe the Bank of Japan will raise interest rates again in December.'

The slowdown in price growth is mainly attributed to the intermittent fiscal assistance measures taken by the Japanese government to offset the effects of inflation pressures. Last year, the Japanese government removed subsidies, a move that had pushed up the inflation rate at the time.

In October, the increase in electricity prices slowed from 15.2% in September to 4%, while the growth in natural gas prices also eased. Utility subsidies reduced overall inflation by 0.54%.

According to Reuters, on November 18, Bank of Japan Governor Kazuo Ueda stated that the Japanese economy is developing towards a sustained wage-driven inflation and warned against keeping borrowing costs at excessively low levels.

In its latest summary of opinions, the Bank of Japan also stated that if prices and the Japanese economy develop as expected, the policy rate could reach 1% as early as the second half of the fiscal year 2025.

Lorraine Tan, Head of Asian Equity Research at Morningstar, stated that while core inflation has eased, the 'core-core' inflation is rising. The company still expects the Bank of Japan to continue 'gradually raising' interest rates and added that the Bank of Japan will want to use monetary policy to keep the yen 'stable'.

She pointed out that if the yen falls too much against the dollar, 'it could increase inflationary pressure' because many input costs are priced in dollars.

In November, the yen weakened against the dollar, reaching a four-month low of 156.74 on November 15. However, the yen has since rebounded slightly against the dollar.

Article reposted from: Jin Ten Data