Under the expectation of interest rate hikes, Japan's inflation in October remains above the central bank's target

The Zhitong Finance APP noted that although the price increase has slightly slowed, Japan's key inflation indicators remain above the central bank's target, largely supporting the Bank of Japan's view that underlying inflation remains solid.

The Japanese government reported on Friday that consumer prices excluding fresh food rose 2.3% year-on-year in October, down from 2.4% in September. This increase was higher than the market's general expectation of 2.2%. The index excluding energy costs and fresh food prices rose 2.3%, up from 2.1% in September.

As most economists surveyed by Bloomberg predicted, Friday's data is likely to lead the central bank to continue normalizing its policy settings and raise interest rates in the coming months.

Takeshi Minami, an economist at the Central Agricultural and Forestry Treasury, stated, "Excluding electricity and gas factors, the inflation rate remains robust. Part of the reason is the rise in import prices, and consumption is average, but the inflation rate is still strong. I believe the Bank of Japan will raise interest rates again in December."

The slowdown in price increases is mainly influenced by the government's intermittent fiscal policies to offset inflationary pressures. Last year, the government removed subsidies, which pushed up the price index at that time.

In October, the increase in electricity costs slowed from 15.2% in September to 4%, and the increase in natural gas prices also slowed. Utility subsidies reduced the overall index by 0.54 percentage points.

On the other hand, processed food prices rose 3.8%, up from 3.1% in September. A report from Teikoku Databank indicated that in October (the beginning month of the second half of the fiscal year), food companies raised prices on 2,911 items. Rice prices surged by 60%.

The momentum of basic prices remains strong, with service price increases accelerating from 1.3% to 1.5%, reinforcing the view that inflation is deeply rooted in the economy.

Although Bank of Japan Governor Kazuo Ueda did not specify the timing of the next interest rate hike, many economists expect it to occur in December or January. The Bank of Japan will announce its next policy decision on December 19.

Economist Taro Kimura stated, "Service prices—the main focus of the Bank of Japan—have rebounded, reflecting adjustments made by businesses at the start of the second half of the fiscal year. Non-fresh food prices are also a driving factor, with rice prices soaring and import food costs climbing. Overall, the report aligns with the Bank of Japan's view that its 2% target has become more solid, while the depreciation of the yen increases the risk of overshooting."

Meanwhile, the government is intensifying efforts to alleviate the burden of rising prices on households. Prime Minister Shigeru Ishiba is expected to announce details of an economic stimulus plan on Friday, which may include new cash subsidies for low-income families and a commitment to restore utility subsidies from January to March "I think the government's economic stimulus measures are somewhat excessive. I don't know when they will stop subsidizing water and electricity bills and gasoline prices," said economist Takeshi Minami. "But considering the recent election results and the fact that there will be another election next year, I think it is inevitable that the scale of the measures will expand."

Public dissatisfaction with inflation was a significant factor in the ruling coalition's poor performance in last month's national election, losing its parliamentary majority.

The weak yen has led to increased costs for imported goods, materials, food, and energy. The recent acceleration in producer prices will put pressure on businesses, forcing them to pass on rising costs to retail and corporate customers.

The yen's decline further intensified after Trump won the U.S. presidential election. Former Bank of Japan monetary policy executive Kazuo Momma stated that if the yen continues to fall, the Bank of Japan may raise the benchmark interest rate in the short term