Japan’s core inflation dips to 2.7%, lowest since November 2024

Japan’s core inflation rate just fell to 2.7% in August, the lowest since November 2024, according to Reuters. This drop makes it the third straight month prices have cooled, and both headline and core inflation are now sitting at that same level.

Core inflation, for the record, leaves out the price of fresh food, not because anyone stopped eating, but because it moves too much to be useful for month-to-month analysis. The headline number also came down, falling from 3.1% in July to 2.7% in August, hitting another low not seen since late last year.

The “core-core” inflation rate, the one Bank of Japan actually watches when making policy calls, also ticked down — now at 3.3%, after hitting 3.4% in July.

That version takes out both fresh food and energy. And if you want to know why this number matters, it’s because it’s the only one they trust to track long-term trends, not just short-term swings. Still, these aren’t big drops. They’re just steady.

Bank of Japan holds rates as GDP rises and rice prices slow

Rice prices, one of the weirdest but strongest parts of Japan’s inflation problem, finally cooled down a bit. In August, rice inflation was 69.7%, way down from 90.7% in July, but still ridiculously high.

People are still paying more for food. No one’s celebrating. But the rate’s drop gave the central bank a little space.

The Bank of Japan is making its next rate decision today, and economists in that Reuters survey expect the bank to keep its benchmark policy rate at 0.5%. But some are already calling for change.

HSBC analysts, in a note sent out on September 12, said they think the central bank might raise rates by 25 basis points when they meet again in October. The reason? “We believe that the second quarter GDP print, which outperformed market expectations, certainly delivered,” they wrote.

They’re referring to Japan’s Q2 GDP, which came in at 0.3% growth quarter-on-quarter, better than the 0.1% expected, and a step up from the revised 0.1% in Q1.

The main thing behind it? Exports. The Japanese economy hasn’t exactly been exploding, but it’s showing signs of resilience, and that’s enough for some to think a hike could be coming soon.

Trade deal with Trump gives exports relief, Kono pressures BOJ

A deal Tokyo reached with Washington in late July gave exporters some breathing room. The U.S. agreed to cut tariffs on Japanese goods to 15%, down from the 25% Donald Trump threatened earlier this year in his “tariff letter.”

That deal eased fears in Tokyo, but it didn’t remove all risk. HSBC pointed out that if global trade slows, Japan’s exporters could still feel the pain.

Meanwhile, the pressure is rising inside the country too. Taro Kono, a senior member of the ruling Liberal Democratic Party, said on September 9 that the BOJ better act fast or prices will keep going up. “If the Bank of Japan delays a rate increase, I think it would mean inflation will continue and everything we import would be higher,” Kono warned.

Markets aren’t sitting still either. The Nikkei 225 rose 1.19% on Thursday, hitting a record high for the second straight day. The Topix index also gained 0.84%.

Investors are watching the BOJ closely, betting that today’s move — or lack of one — won’t be the last. Over in the bond market, Japan’s 2-year government bond yield climbed to 0.885%, the highest level since June 2008, based on LSEG data. Traders are clearly pricing in a future rate hike.

Other markets in Asia moved too. Australia’s ASX/S&P 200 jumped 0.77%. South Korea’s Kospi and Kosdaq were flat at the open. Hong Kong’s Hang Seng Index dropped 0.4%, and China’s CSI 300 rose 0.13%.

Then there’s the wider regional context. The Federal Reserve just cut interest rates by 0.25 percentage points on Wednesday and signaled there could be more cuts coming. That move has opened the door for other Asian central banks to follow suit — or get ahead of it.

A few already have. The Bank of Korea dropped its rate to a three-year low back in May. Australia’s central bank slashed its rate to a two-year low in August. And India’s central bank cut by 50 basis points in June.

All this matters because economies like Japan, South Korea, and Singapore still rely heavily on exports. And despite all the inflation and trade chaos, those three still managed to post better-than-expected GDP growth in Q2. Seoul and Singapore even narrowly dodged technical recessions.

Don’t just read crypto news. Understand it. Subscribe to our newsletter. It's free.