Inflationary momentum in Japan showed signs of easing in September, with all-item CPI decelerating to 3.0% yoy, down from 3.2% yoy in the prior month. Core CPI, which strips out the volatile food prices, also showed a downtrend, registering at 2.8% yoy, a dip from 3.1% yoy. Furthermore, core-core CPI, which excludes both food and energy prices, declined marginally from 4.3% yoy to 4.2% yoy.

Remarkably, core inflation dipped below the 3% mark for the first time since August 2022. Nevertheless, it remains above BoJ’s 2% target, marking the 18th consecutive month of surpassing this benchmark.

The detailed breakdown of the data indicates that energy prices were a significant drag, plunging by -11.7% yoy. This downturn can be attributed to the government’s proactive measures to trim utility bills, resulting in double-digit falls in electricity and city gas prices. On the contrary, food prices remained on an upward swing, posting 8.8% yoy increase.

There are reports suggesting an upward revision in BoJ’s core CPI forecast for fiscal 2023. Sources familiar with the bank’s deliberations indicate a possible revision from 2.5% to nearly 3.0%. All eyes will now be on BoJ ‘s policy meeting scheduled for Oct 31, where a new outlook report is anticipated.

BoJ Deputy Governor Masazumi Wakatabe reiterated to the parliament that the quantitative and qualitative easing program (QQE) had “clearly positive” impact of the economy and prices. And, benefits of easing is “outweighing” its costs.

He admitted that BoJ hasn’t put a sustained end to deflation yet while inflation remains below 2% target. But he emphasize “we’re seeing an end to a long period of time when consumer prices kept falling.”

On exit, he said “how an exit from easy policy affects BOJ’s balance sheet would depend on various factors such as means, the order in which it exits.”