Japan: Inflation picks up in October
Latest reading: Consumer prices were up 3.0% on a year-on-year basis in October, following a 2.9% increase in the previous month. As a result, inflation remained above the Bank of Japan’s 2.0% target for the 43rd consecutive month.
Relative to the previous month’s data, price pressures were higher for transportation in October (+3.6% on a year-on-year basis vs +3.0% in September). In contrast, there were milder price pressures for housing (+0.9% vs +1.0% in September), food (+6.4% vs +6.7% in September) and energy (+2.1% vs +2.3% in September).
Meanwhile, core consumer prices rose 3.0% in annual terms in October, up from September’s 2.9% increase.
Lastly, consumer prices were up 0.69% in October on a month-on-month basis, following a 0.07% decline in the prior month.
Outlook: Inflation should ease for the third quarter running in Q4 2025, and further in Q1 2026, before settling just below the Bank of Japan’s 2.0% target as a result of higher interest rates, a stronger yen and tepid oil prices.
In related news, the Japanese government, led by new Prime Minister Sanae Takaichi, unveiled a USD 135 billion (about 3% of GDP) stimulus package on 21 November—a move which some economists think could overheat the economy, and therefore push up inflation; economic output was just 0.3% below its potential level in Q2 2025, according to the Bank of Japan’s latest figures. Still, about half of the money is set to go to help households with the heightened cost of living, which should mitigate the package’s inflationary impact; measures include cutting gasoline tax, making high-school tuition free from April, and subsidies for electricity and gas bills in winter.
Panelist insight: EIU analysts said:
“Both headline and underlying inflation will ease in 2026, with the former averaging 1.5% in our forecast, down from an estimate 3.1% in 2025. This will be driven in part by a moderation in runaway rice prices, which had been a particularly prominent driver of inflation and a source of political pain for the ruling LDP. The rice shortage has been caused by years of curbing domestic rice production and restricting imports (to support rice farmers), and the situation has been exacerbated by a jump in demand following a surge in tourist inflows.”