Japan's inflation rate slowed in September, with the National Consumer Price Index (CPI) increasing 2.5% year-over-year (YoY), down from the previous 3.0% reading. While this marks a slight deceleration in overall inflation, the core inflation measures—closely watched by policymakers—paint a more complex picture.

Notably, CPI excluding Fresh Food rose 2.4% YoY, beating market expectations of 2.3%, though lower than the previous reading of 2.8%. This shows that while headline inflation may be easing, underlying price pressures remain resilient. Further driving home that point, CPI excluding Fresh Food and Energy—a measure often seen as a better gauge of core inflation—climbed 2.1% YoY, marginally higher than the prior 2.0%.

These mixed signals complicate the outlook for the Bank of Japan (BOJ), which has maintained its ultra-loose monetary policy amid tepid economic growth. Despite the modest rise in core inflation, overall price pressures remain well below global counterparts, keeping the BOJ’s stimulus measures firmly in place. However, with core inflation ticking upward, there may be rising concerns about the longer-term inflation outlook in Japan, especially as other central banks worldwide continue to tighten policy.