Japan's Tokyo Consumer Price Index (CPI) inflation rose to 1.6% year-over-year in February 2025, according to data released by the Statistics Bureau of Japan. This figure surpasses market expectations and represents the highest February reading in over three decades, signaling a crucial economic shift for a nation historically plagued by deflation.
The acceleration from January's 1.4% reading suggests persistent price pressures. More significantly, the core-core CPI, which excludes both fresh food and energy, climbed to 2.2%, indicating broadening inflationary trends beyond volatile components. Key drivers included processed food prices rising 4.1%, accommodation costs surging 9.8% amid tourism recovery, durable goods prices increasing 2.3%, and service prices growing 1.9% reflecting wage growth transmission.
Economists highlight this as a structural change. Dr. Haruka Tanaka, Chief Economist at Mitsubishi UFJ Research, stated, "February’s Tokyo CPI inflation confirms a fundamental change. Previously, price increases concentrated in specific sectors. Now, we observe broader-based inflation across categories." The Bank of Japan, while acknowledging inflation persistence, emphasizes the need for sustainable wage growth alongside price stability, keeping monetary policy adjustments data-dependent.
Financial markets reacted with government bond yields increasing slightly, the yen strengthening modestly against the dollar, and equity markets showing sector-specific movements. The inflation data, coupled with a resilient AUD/JPY currency pair that maintains its uptrend despite a recent dip below 111.00, underscores the complex interplay of domestic price pressures and international currency dynamics. The interest rate differential between the Reserve Bank of Australia (cash rate 4.35%) and the Bank of Japan (policy rate near zero) continues to influence cross-currency flows.
