Core inflation in Tokyo slows, still on track to hit BOJ goal

By Leika Kihara

TOKYO, Jan 30 (Reuters) - Core inflation in Japan's capital slowed to a 15-month low in January due to the effects of gasoline subsidies and easing price pressure on food, data showed on Friday, a sign consumers were getting some respite from the rising cost of living.

But an index stripping away the effect of fresh food and fuel, which is ?seen as a better gauge of trend inflation, stayed well above the Bank of Japan's 2% target in a sign the world's fourth-largest economy ?continued to make progress in durably hitting the price goal.

The data underscores the BOJ's projection that ?core inflation will briefly slide below its 2% target as food price hikes ?run their course, before re-accelerating ?as steady wage gains underpin households' purchasing power.

The Tokyo core consumer price index, which excludes volatile costs of fresh food, rose 2.0% in ?the year to January, data showed, below a median ?market forecast for a 2.2% rise.

It slowed from a 2.3% increase in December to mark the lowest year-on-year increase since a 1.8% rise in October 2024.

The slowdown was due ?largely to the base effect of last year's sharp ?rise in ?food prices, and the effect of gasoline subsidies.

A separate index for Tokyo that strips away both fresh food and fuel costs - closely watched by the BOJ as a measure of demand-driven prices - ?rose 2.4% in January after a 2.6% gain in December, the data showed.

"Today's data won't derail the BOJ's efforts to raise interest rates because the slowdown in core inflation is due mostly to one-off factors," said Yoshiki Shinke, senior executive economist at Dai-ichi Life Research Institute.

While the effect of the government's fuel subsidies will likely push core inflation below the BOJ's 2% target in coming months, the focus would be ?on whether companies ?would hike prices again to pass on rising import costs from a weak yen, he said.

"The BOJ may hike rates in April if the weak yen prods many companies to push ?up prices at the April start of Japan's fiscal year," Shinke said.

Separate data released on Friday showed Japan's factory output edged down 0.1% in December from the previous month, compared with a median market forecast for a 0.4% dip.

Manufacturers surveyed by the government expect output to jump 9.3% in January and fall 4.3% in February, the data showed.

The BOJ raised interest rates to a 30-year high of 0.75% in December, taking another landmark step in ending decades of huge ?monetary support in a sign of its conviction Japan is progressing toward durably hitting its 2% inflation target.

The central bank retained its hawkish inflation forecasts last week and stressed its vigilance to price risks from a weak yen, signalling that policymakers intend to keep ?raising rates in a politically charged atmosphere.

(Reporting by Leika Kihara; additional reporting by Satoshi Sugiyama; Editing by Jamie Freed)