TOKYO: Japan’s core inflation rate held steady at 1.4% in May, aligning with market expectations and indicating that underlying price pressures remain largely contained, even as concerns persist over rising energy costs.
Official data showed that the core consumer price index excluding fresh food remained unchanged from April, matching economists’ forecasts in a Reuters poll and signaling stable inflation dynamics.
Headline inflation inched up to 1.5% from 1.4% in the previous month, while the “core-core” measure, which strips out both food and energy prices, eased to 1.8% from 1.9%, suggesting a mild cooling in broader inflation momentum.
Financial markets reacted positively to the release, with Japan’s Nikkei 225 rising 0.81%, while yields on 10-year Japanese Government Bonds climbed to 2.637%, reflecting shifting expectations in the bond market.
The data comes against the backdrop of the Bank of Japan’s recent decision to raise interest rates to their highest level since 1995, alongside warnings that underlying inflation could exceed the central bank’s 2% target due to persistent energy-driven cost pressures.
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Energy prices recorded a smaller year-on-year decline of 2.5%, compared with a 3.9% drop in April, indicating that disinflationary pressure from the energy sector is gradually easing.
Although government support measures have helped shield households from sharper price increases, businesses continue to grapple with sustained input cost pressures across multiple sectors of the economy.
Japan’s producer price index surged 6.3% in May, marking its fastest pace in more than three years, driven primarily by elevated energy costs and persistent upstream price pressures.
The Bank of Japan noted that rising crude oil prices are increasingly being transmitted through business-to-business channels, raising the risk of broader spillover into consumer prices across a wider range of goods and services.
Meanwhile, the Japanese yen remained under sustained pressure, trading near the 161-per-dollar level despite intervention efforts by authorities and earlier monetary tightening measures by the central bank.
Analysts caution that continued yen weakness could further intensify inflationary pressures, particularly given Japan’s heavy reliance on dollar-denominated energy imports, a vulnerability exacerbated by ongoing global energy market volatility.
