Tokyo core CPI rose 2.9% year-on-year in July, cooling inflation supporting the Bank of Japan's interest rate hike path.
At the time of this data release, Japanese Prime Minister Shizo Abe suffered a historic defeat in Sunday's election due to voters' dissatisfaction with high prices.
The latest data released by the Japanese Ministry of Internal Affairs and Communications on Friday showed that the consumer price index (excluding fresh food) in the Tokyo area in July increased by 2.9% year-on-year, a decrease of 0.2 percentage points from June's 3.1%, marking the first time the index has fallen below the 3% mark since March of this year.
At the time of the data release, Japanese Prime Minister Shizo Abe suffered a historic defeat in Sunday's election due to voter dissatisfaction with high prices, with the ruling coalition failing to gain a majority in both houses of parliament.
The market had previously expected the July inflation rate to slow to 3%, based primarily on two considerations: the Tokyo Metropolitan Government's summer exemption of part of the water fee putting downward pressure on the price index, and energy prices gradually falling after a sharp increase last year. The data showed that Tokyo water fees had decreased for the second consecutive month by 34.6%, marking the largest decline since 1971.
However, the core inflation index, excluding energy prices, still rose by 3.1% year-on-year, unchanged from the previous month, indicating that underlying price pressures still exist. As a leading indicator of national price trends, Tokyo CPI data continues to be closely monitored by economists.
Chief economist at the Nomura Research Institute, Minami Takeshi, analyzed that energy prices, water price adjustments, and fluctuations in rice prices were the main reasons for the current decline in inflation. He predicts that future inflation will continue to cool, with the cooling pace expected to be in line with the Bank of Japan's expectations.
As cost-driving factors gradually diminish, the ability to transfer costs such as labor costs will be a key to the sustainability of inflation. "Currently, core inflation still has resilience, with companies passing on rising labor costs to end prices," added Minami Takeshi.
It is worth noting that although the slowdown in the decline of electricity and natural gas costs has slowed overall price increases, the pressure on actual household living costs has not significantly eased. The costs of processed foods and eating out are still influenced by the surge in rice prices, with rice prices in July rising by 81.8% year-on-year, narrowing from the 90.6% increase in June but still at historically high levels.
The Japanese government has taken measures such as releasing emergency reserves to suppress rice prices, but the effects have not yet fully materialized. Excluding fresh food, food prices rose by 7.4% year-on-year, marking the largest increase since September 2023, with the Imperial Database statistics showing that 2,105 food items will increase in price this month, five times the increase compared to the same period last year, making it the longest price hike since 2022.
Voters' dissatisfaction with the soaring prices of daily necessities was directly reflected in the election results. Following the defeat, Shizo Abe stated that he would continue to remain in office, but some lawmakers have already called for his resignation. Despite the unexpected boost in market confidence from the trade agreement announced by the Trump administration, the election defeat has added uncertainty to the policy direction.
Investors are now watching to see whether the government will address inflation pressures through cash subsidies or adjustments to the consumption tax. The Prime Minister has previously proposed a cash subsidy plan, while the opposition party promises to reduce the consumption tax.
The Bank of Japan is set to announce its latest policy decision on July 31. Deputy Governor Masahiro Uchida stated on Wednesday that current inflation performance is stronger than expected, which may lead to an upward revision of inflation forecasts. Following the boost in market confidence from the Trump trade agreement, Uchida's remarks further strengthened expectations for rate hikes.
The data showed that service prices rose by 2.1% year-on-year, unchanged from the previous month, indicating a balanced distribution of inflation pressures. Long-term labor shortages continue to drive companies to gradually increase wages, with a Bank of Japan survey showing that households expect a 12.8% increase in prices over the next year, which has become an important factor supporting inflation resilience.
Although all 56 surveyed Bank of Japan observers predict that the policy interest rate will remain unchanged at 0.5% in July, inflation data and changes in the political situation could still affect future decisions. Minami Takeshi believes that in the context of high inflation, the Abe government will continue to face demands to take more measures to alleviate the pressures on people's livelihoods, with the challenge of balancing fiscal stimulus and structural reforms becoming a key issue.
Related Articles

Car chips, painful struggle!

The world is watching the meeting in Scotland closely! European Council President von der Leyen will attend to meet with Trump and strive to reach a trade agreement.

Musk's Neuralink joins the game! Collaborating with top academic institutions to research "intelligent bionic eyes".
Car chips, painful struggle!

The world is watching the meeting in Scotland closely! European Council President von der Leyen will attend to meet with Trump and strive to reach a trade agreement.

Musk's Neuralink joins the game! Collaborating with top academic institutions to research "intelligent bionic eyes".

RECOMMEND

After Eight Consecutive Rate Cuts, the European Central Bank Pauses as Expected; Future Policy Direction Remains Murky
25/07/2025

U.S. President Makes First Official Visit to the Federal Reserve in Nearly 20 Years—What Did Trump and Powell Say?
25/07/2025

New Categories of Air Conditioners in Short Supply, Sales of Ice-Packed Handheld Fans Surge, China’s “Cooling Big Four” Explode in Popularity Across Europe
25/07/2025