On October 18th, Japan's Ministry of Internal Affairs and Communications released the latest inflation data, showing that Japan's CPI increased by 2.5% year-on-year in September, a decrease of 0.5 percentage points from August; the core CPI, excluding fresh food, increased by 2.4% year-on-year, a decrease of 0.4 percentage points from August, indicating a slowdown in Japan's inflationary pressures. Cao Hongyu, a researcher at the Bank of China Research Institute, believes that although Japan's inflationary pressures have eased, the Bank of Japan's interest rate hike path remains cautious.

Influenced by the Japanese government's resumption of subsidies for electricity and gas costs, inflation in Japan cooled somewhat in September. After four consecutive months of expansion, Japan's core CPI rebounded in September, mainly due to the government's resumption of subsidies for electricity and gas costs in August. Previously, affected by the international energy price increases caused by the Ukraine crisis, the Japanese government began providing subsidies for electricity and urban gas fees from January 2023, a policy that continued until May 2024. However, from May onwards, Japan's core CPI increased for four consecutive months, with energy price increases being the main driver of CPI growth. In August, the year-on-year increases in electricity and gas fees in Japan reached 26.2% and 11.1%, respectively, with the energy CPI increasing by 12% for two consecutive months between July and August, reaching the highest level since February 2023. To help residents alleviate the burden of energy price increases, the Japanese government resumed subsidies for electricity and gas costs from August to October. As a result, the prices of electricity and gas increased by 15.2% and 8.3% in September, respectively, with growth rates narrowing by 11 and 6.8 percentage points from the previous period. The overall year-on-year increase in energy prices shrank from 12.0% in the previous month to 6.0%, providing some relief to inflationary pressures.

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Food inflation continues to rise, significantly impacting Japanese residents' consumption and living conditions. In September, the prices of fresh food and other food items in Japan increased by 5.5% and 3.1%, respectively, contributing 0.25 and 0.73 percentage points to the CPI increase. Notably, the prices of grains and fresh vegetables rose significantly, increasing by 10.4% and 6.8%, respectively. Food expenditure as a proportion of Japanese residents' consumption expenditure continues to rise, with the Engel coefficient for households with more than two people in Japan rising to 28% from January to August this year, reaching the highest value since 1982. It is worth noting that since July, many regions in Japan have been troubled by a "rice shortage," with rice prices rising significantly. The price of Japanese milled rice in August increased by 29.9% year-on-year, the largest increase since 1976. The increase further expanded to 46.3% in September. In response to the ongoing shortage of rice, the Japanese government, citing the upcoming release of new rice, refused to release reserve rice to the market, sparking widespread controversy among the public.

The Bank of Japan's interest rate hike path remains cautious. Compared to the overall trend of slowing CPI and core CPI growth, Japan's CPI, excluding fresh food and energy, increased by 2.1% year-on-year in September, higher than the expected and previous 2%. Additionally, supported by the distribution of summer bonuses, the growth rate of Japanese residents' real income briefly turned positive between June and July but turned negative again in August. Bank of Japan Governor Haruhiko Kuroda previously stated that inflation drivers must shift from rising raw material prices to solid domestic demand and wage growth to achieve a sustainable and stable 2% inflation rate. Currently, Japan's service inflation and resident income growth remain obstructed, and from an economic standpoint, this means that the Bank of Japan will maintain a more cautious stance on interest rate hikes.

Mizuho Securities recently stated that long-term political turmoil may prevent the Bank of Japan from raising interest rates; political uncertainty ahead of the House of Representatives election may lead to a weaker yen, thereby boosting the stock market. Mitsubishi UFJ Financial Group believes that the possibility of the Bank of Japan raising interest rates again before the end of the year is increasing. The Japanese stock market has fully recovered from the summer decline, indicating an improvement in financial stability risks, which could encourage the Bank of Japan to maintain an accelerated interest rate hike trajectory.

On October 21st, Bank of Japan Governor Haruhiko Kuroda expressed a cautious attitude towards interest rate hikes. He believes that although the Japanese economy has shown some signs of weakness, it is still in a moderate recovery process and is expected to continue growing at a level higher than potential growth. However, the central bank must remain vigilant about market fluctuations, foreign exchange movements, and their impact on the Japanese economy and prices. The international foreign exchange market immediately responded, with the US dollar to yen exchange rate breaking 150 on the 21st, rising by 0.27% within the day.