Tokyo Inflation Surges to Two-Year High, Supporting BOJ Rate Hike

Tokyo's inflation rate rose to a two-year high in April, with core consumer prices excluding fresh food climbing 3.4% year-on-year, outpacing economist forecasts. The overall inflation rate in Tokyo increased to 3.5% from 2.9% in March, driven by higher food and energy costs, reduced government subsidies for utilities, and the fading effect of last year's school fee cuts. This acceleration in inflation strengthens the Bank of Japan's case for further interest rate hikes, particularly as core measures now sit well above the BOJ's 2% target. However, the central bank faces a complex policy environment due to uncertainty around U.S. tariff actions, which could dampen global demand and impact Japan's economic outlook. The BOJ is expected to keep rates steady at its upcoming policy meeting but may consider further hikes if inflation remains elevated and the impact of U.S. tariffs proves manageable. Rising wages from recent labor negotiations are also anticipated to boost consumption and sustain inflationary pressures in the coming months.