tl;dr
Japan's inflation hits 2.9% in September, exceeding the BOJ's target for 41 months, but mixed signals hint at potential slowdowns. Prime Minister Takaichi's stimulus package faces scrutiny as households and markets brace for volatility.
**Japan's Inflation Rises Again, But Mixed Signals Spark Concern**
Japan’s inflation accelerated in September, marking the first increase since May, as core consumer prices jumped 2.9% year-on-year, matching analyst forecasts and surpassing the Bank of Japan’s (BOJ) 2% target for the 41st consecutive month. The rise, however, came alongside mixed signals, with some indicators suggesting a potential slowdown in broader price pressures.
The core inflation rate, which excludes fresh food but includes energy costs—a significant portion of household expenses—rose to 2.9%, mirroring the headline inflation figure. This underscores the persistent challenge of rising prices, even as the BOJ’s preferred metric, the core-core index (excluding both energy and fresh food), slowed to 3% in September, down from 3.3% in August. This decline hinted at a possible easing of underlying inflationary pressures, though it remains far above the central bank’s goal.
The situation is compounded by volatile commodity prices and supply chain disruptions, which have left households grappling with rising costs. Rice prices, a staple for many Japanese families, saw a sharp slowdown in inflation, falling to 49.2% in September from a peak of 69.7% in August. While the moderation offers some relief, families still face steep costs, with prices remaining historically high.
Market reactions were cautious. The Nikkei 225 rose 0.78% following the inflation data, while the yen edged up slightly against the dollar. Traders remain wary of the BOJ’s delayed shift from its decades-long policy of ultra-low interest rates, which has kept the yen weak and imports expensive.
Prime Minister Sanae Takaichi, who took office this week, faces a daunting task. Her government is preparing a ¥13.9 trillion ($92.19 billion) stimulus package aimed at cushioning households from rising prices, boosting tech investment, and bolstering defense spending. However, economists warn that without meaningful inflation reduction, the cabinet’s popularity could falter. Jesper Koll of Monex Group noted that if inflation remains above 2% in the next six to nine months, public support for Takaichi’s administration could collapse.
Experts highlight the disproportionate impact of inflation on retirees and fixed-income earners. Tomohiko Taniguchi, a special advisor at the Fujitsu Future Studies Center, emphasized that Japan’s aging population faces severe hardship, calling Takaichi’s approach to inflation a critical test of her leadership.
Beyond Japan, Asian markets showed resilience. South Korea’s Kospi surged 2% to a record high, driven by optimism ahead of U.S. President Donald Trump’s visit to the region. Meanwhile, the Australian central bank announced plans to review upgrades to its interbank settlement system, signaling efforts to modernize financial infrastructure.
As Japan navigates this complex economic landscape, the interplay between inflation, policy responses, and global market dynamics will shape its path forward. For now, the nation remains on edge, balancing the need for stability with the challenges of a rapidly evolving economic environment.