Tokyo Inflation Cools but Remains Above BOJ Target Amid Economic Fragility

Core consumer inflation in Tokyo eased to 2.5% year-on-year in August, down from July's 2.9% but still exceeding the Bank of Japan's 2% target. Government utility subsidies tempered price rises, yet underlying pressures persist. The data reinforces market expectations of eventual BOJ rate hikes despite mounting economic headwinds.

Japan's factory output contracted in July while retail sales growth underwhelmed, exposing vulnerabilities in the recovery. U.S. tariffs continue to weigh on production, even after partial reductions under bilateral trade terms. "Core inflation will likely decelerate as yen appreciation and moderating import costs filter through," said Sompo Institute Plus economist Masato Koike.

The mixed signals present a policy dilemma for the BOJ. Price growth remains stubbornly above target even as economic momentum falters. Market participants now scrutinize every data point for clues on the timing of Japan's next monetary tightening move.