Inflation "cooling down" cannot hide the core heat, Japan's central bank raising interest rates becomes the focus.

Under the government's utility subsidy policy, the inflation rate for Japanese consumers suddenly slowed down, but as the central bank is about to announce its policy decision, the inflation level is still far above its target. Data from the Japanese Ministry of Internal Affairs and Communications on Friday showed that the core consumer price index (CPI), excluding fresh food, rose by 2.7% year-on-year in August, a slight decrease from 3.1% in July and the lowest level since November last year, in line with economists' median expectations. Economists had previously believed that the restart of subsidy measures aimed at helping families cope with record high temperatures would suppress overall inflation. At the same time, the overall CPI, covering all categories, also decreased from 3.1% to 2.7% year-on-year. However, the core-core CPI, which excludes energy prices further, rose by 3.3% year-on-year, only slightly lower than the level in July, in line with analysts' expectations. Given that the market widely expects the Bank of Japan to keep its policy unchanged at this meeting, the CPI data is unlikely to change the bank's monetary policy decision on Friday. Earlier this week, the Federal Reserve's highly anticipated interest rate cut did not trigger market volatility, and traders are now focused on whether Bank of Japan Governor Haruhiko Kuroda will signal a policy shift at the press conference, indicating that the committee is considering a rate hike. The Bank of Japan usually announces its policy statement at noon, and Kuroda will hold a press conference at 2:30 pm. Taro Saito, chief director of the Economic Research Department at NLI Research Institute, said, "These CPI data may be within the central bank's expectations and will not affect today's policy decision because they are more concerned about the economic risks posed by tariffs, and core inflation is still improving. They are looking for the right time to raise rates, and the earliest is expected to be in January next year - provided that economic risks have eased by then." Bloomberg economist Taro Kimura said, "Despite the temporary impact of energy subsidies, overall CPI in Japan fell slightly year-on-year in August, but inflation momentum remains strong, making the Bank of Japan likely to start raising rates as planned in October. Excluding the impact of fresh food, energy prices, and subsidies, inflation indicators still remain at over 3% year-on-year, far above the central bank's 2% target." Specifically, in August, energy prices in Japan fell by 3.3% year-on-year, the largest decline since January 2024, while the government's natural gas and electricity subsidy policy directly reduced overall CPI by 0.26 percentage points. In addition to energy, food prices were also one of the factors dragging down inflation. Although food prices continued to rise, the rate of increase narrowed significantly: processed food prices rose by 8% year-on-year, lower than 8.3% in July; rice prices fell sharply from 90.7% in July to 69.7%. In addition, service prices maintained a year-on-year increase of 1.5% for the third consecutive month. The main factor driving inflation up was gasoline prices, which rose by 0.6% year-on-year in August, reversing the 1.3% decline in July. The persistently high food inflation is likely to be a focal point of discussion in Bank of Japan's policy discussions. The data mentioned rising food prices such as chocolate, coffee, sushi, chicken, and eggs.