Tokyo Core-Core CPI Slows to 1.8%, Lowest Since September 2024
18h ago|4 min readStandard
Fazen Markets Editorial Desk
Collective editorial team · methodology
japan-inflationtokyo-cpi
Fazen Markets Editorial Desk
Collective editorial team · methodology
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Tokyo consumer inflation data released on 28 May 2026 showed a broad deceleration in price pressures. The key core-core CPI, which excludes fresh food and energy, rose 1.8% year-on-year in May, down from a 2.1% pace in April and marking its slowest rate of increase since September 2024. The headline CPI also cooled, rising 2.2% compared to 2.5% the prior month, while core CPI that excludes only fresh food rose 2.0% after a 2.3% print in April. The data was reported by investinglive.com, indicating a critical shift in Japan's inflation trajectory.
The deceleration comes as the Bank of Japan continues a delicate exit from its decades-long ultra-loose monetary policy. The central bank ended its negative interest rate policy in March 2024 and has since executed two cautious 10-basis-point hikes, bringing its policy rate to 0.2%. The last time Tokyo's core-core inflation was this weak, in September 2024, the BOJ was still holding its policy rate at zero percent. The current macro backdrop features 10-year Japanese Government Bond yields stabilizing around 1.0% and the USD/JPY pair trading near 157.50.
Pressure for further tightening had been building following stronger-than-expected wage outcomes from the annual Shunto spring negotiations. However, weakening household consumption, evidenced by three consecutive monthly declines in real household spending through March, now appears to be translating into softer price pressures. This creates a direct conflict between wage-driven inflation expectations and demand-side weakness. The catalyst for this month's deceleration was primarily a further slowdown in processed food price inflation, which eased into the low 3% range from highs above 4% last year.
Tokyo's May CPI data presented a clear cooling trend across all major metrics. Headline CPI increased by 2.2% year-on-year, down 30 basis points from April's 2.5% rise. The core CPI, excluding only fresh food, rose 2.0%, decelerating from 2.3%. The most closely watched gauge, the core-core CPI, decelerated to 1.8% from 2.1%. This 30-basis-point slowdown brought it to the lowest level recorded in eight months.
| Metric | May 2026 YoY | April 2026 YoY | Change (bps) |
|---|---|---|---|
| Headline CPI | 2.2% | 2.5% | -30 |
| Core CPI (ex-Fresh Food) | 2.0% | 2.3% | -30 |
| Core-Core CPI (ex-Food & Energy) | 1.8% | 2.1% | -30 |
The slowdown contrasts with the Bank of Japan's stated goal of achieving stable 2% inflation. Recent national CPI data for April showed core inflation at 2.2%, while the BOJ's preferred measure that excludes fresh food and energy was at 2.4%. Tokyo's figures are a leading indicator, suggesting these national figures will also ease in the coming month. The current 1.8% core-core rate also undercuts the 2.0% median forecast from economists surveyed prior to the release.
The immediate market implication is reduced pressure on the Bank of Japan to hike rates at its July 2026 meeting. Money markets are now pricing in less than a 30% probability of a hike in July, down from near 50% prior to the data release. This dovish shift directly supports Japanese equities, particularly the export-heavy Nikkei 225 index, as a weaker yen and lower discount rates boost corporate earnings valuations. Sectors with high domestic operating use and sensitivity to borrowing costs, like utilities and real estate, may see relative strength.
Conversely, the data is bearish for the Japanese yen, which loses its interest rate differential support. The USD/JPY pair spiked 40 pips immediately following the release, breaking above the 158.00 handle. Japanese Government Bond yields dipped, with the 10-year JGB yield falling 3 basis points. A key risk to this analysis is that the BOJ may prioritize signaling policy normalization over near-term data, viewing the Shunto wage gains as more indicative of the long-term trend. Positioning data from the Tokyo Financial Exchange shows leveraged fund net short yen positions near their largest since April 2024, indicating the move could be extended.
Markets will scrutinize the nationwide Japan CPI data for May, scheduled for release on 27 June 2026. The Tokyo figures suggest a downside surprise is likely. The next major catalyst is the Bank of Japan's policy meeting on 17 July 2026. Governor Ueda's press conference will be pivotal in assessing whether the committee views this slowdown as transitory or a trend.
Key levels to watch include USD/JPY resistance at 158.80, the high from April 2026, and support at the 200-day moving average near 155.20. For the Nikkei 225, sustained trade above the 39,000 level would signal continued bullish momentum fueled by delayed tightening. Any break below 37,500 would suggest broader risk-off sentiment is overpowering the local dovish shift. The Q2 2026 Tankan business sentiment survey, due 1 July, will provide crucial data on corporate inflation expectations and capital expenditure plans.
Tokyo core-core CPI is a measure of consumer price inflation that excludes both fresh food and energy prices. It is considered the cleanest gauge of underlying, demand-driven inflation trends in Japan's largest metropolitan economy. The Bank of Japan closely monitors this metric because it filters out volatile food and energy components, providing a clearer signal of sustainable price trends that monetary policy can influence. Tokyo data is released a month ahead of national figures, making it a critical leading indicator for the entire country.
The Bank of Japan officially ended its yield curve control policy in 2024, but it continues to guide long-term interest rates through bond purchases and policy communications. Slower inflation reduces the urgency for the BOJ to further reduce its bond-buying operations, which currently stand at around 6 trillion yen per month. A sustained decline in the core-core rate could lead the BOJ to slow its planned taper, providing continued liquidity support to the JGB market and capping long-term yield rises.
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