Although the price growth rate has slowed slightly, Japan's key inflation indicators are still higher than the central bank's target, which to a large extent supports the Bank of Japan's view that the underlying inflation remains stable.

The Japanese government reported on Friday that consumer prices excluding fresh food rose by 2.3% year-on-year in October, lower than the 2.4% in September. This increase was higher than the market's general expectation of 2.2%. The index, excluding energy costs and fresh food prices, rose by 2.3%, higher than the 2.1% in September.

As predicted by most economists surveyed by Bloomberg, Friday's data is likely to prompt the central bank to continue further normalizing its policy settings and raising interest rates in the coming months.

Economist Takeshi Minami of the Agricultural and Central Bank of Japan stated: "Excluding the factors of electricity and natural gas, the inflation rate remains robust. Part of the reason is the rise in import prices, consumer conditions are average, but the inflation rate remains strong. I believe the Bank of Japan will raise interest rates again in December."

The slowdown in price growth is mainly due to intermittent government fiscal policies to counter inflationary pressures. The government's subsidy withdrawal last year pushed up the price index at that time.

In October, the increase in electricity costs slowed from 15.2% in September to 4%, and the price increase for natural gas also slowed down. Utility subsidies led to a 0.54 percentage point decrease in the overall index.

On the other hand, processed food prices rose by 3.8%, higher than the 3.1% in September. According to a report from Teikoku Databank database, in October (the start of the second half of the fiscal year), food companies raised prices for 2911 types of products. The price of rice increased by 60%.

Basic price momentum remains strong, with the service price increase accelerating from 1.3% to 1.5%, strengthening people's deep-rooted view of inflation in the economy.

Although the Governor of the Bank of Japan, K Haruhiko, did not explicitly state the timing of the next rate hike, many economists expect the next rate hike to take place in December or January. The Bank of Japan will announce the next policy decision on December 19.

Economist Taro Kimura stated, "Service prices - the main focus of the Bank of Japan - have rebounded, reflecting adjustments made by companies at the start of the second half of the fiscal year. Non-fresh food prices are also a driving factor, with rice prices soaring and import food costs rising. Overall, the report is consistent with the Bank of Japan's view that its 2% target is becoming more solid, while yen depreciation increases the risk of overshooting."

At the same time, the government is intensifying efforts to alleviate the burden of continuous price increases on families. Prime Minister Shizo is expected to announce the contents of an economic stimulus package on Friday, which may include providing new cash subsidies for low-income families and promising to restore public utility subsidies from January to March.

"I think the government's economic stimulus measures are somewhat excessive. I don't know when they will stop subsidizing water and electricity bills and gasoline prices," economist Takeshi Minami said. "But considering the results of the recent elections and another election next year, I think it is inevitable that the scale of the measures will expand."

Public dissatisfaction with inflation was a significant factor in the ruling coalition's poor performance and loss of parliamentary majority seats in last month's national elections.

The weakness of the yen has led to increased costs for imported goods, materials, food, and energy. Recent acceleration in producer prices will put pressure on businesses, forcing them to pass on cost increases to retail and corporate customers.

After Trump won the US presidential election, the yen's decline intensified further. Kazuo Momma, former Executive Director of the Bank of Japan Monetary Policy Department, stated that if the yen continues to fall, the Bank of Japan may raise the benchmark interest rate in the short term.

Editor/ping