Tokyo's inflation cooling more than expected, is expected to not hinder the Bank of Japan from further raising interest rates.

The Japanese Ministry of Internal Affairs and Communications released data on Friday showing that Tokyo's inflation cooled more than expected due to the weakening pressure from rising food and energy prices, but this trend is not expected to hinder the Bank of Japan from further raising interest rates. The core consumer price index in Tokyo, excluding fresh food, rose 2.3% year-on-year in December, a significant drop from the 2.8% increase the previous month, with economists previously expecting the data to only drop to 2.5%. Overall inflation slowed from 2.7% last month to 2.0%, while the core core inflation rate, excluding fresh food and energy prices, fell to 2.6%. Tokyo inflation data has always been a leading indicator of national inflation trends in Japan. At the time of the release of this data, the market is closely watching the direction of Japanese prices to determine the timing of the central bank's next policy adjustment. Last week, the Bank of Japan's Monetary Policy Committee unanimously passed a resolution to raise the policy rate to 0.75%, the highest level since 1995. Despite the significant drop in inflation data this time, it is still above the Bank of Japan's target of 2% inflation, meaning that the central bank's path for further policy tightening is not affected. This result also broadly aligns with the central bank's baseline expectation that upward pressure on prices will gradually ease.