Japanese Economy: Inflation Slows Down, Driven by Government Subsidies

■ Increased government subsidies curbed food and energy price increases, leading to a significant slowdown in the Tokyo wards' CPI growth, but underlying inflationary pressures remain high. 

■ Industrial production declined in November, and inventories fell to low levels. Due to insufficient inventory, the manufacturing sector is expected to increase production at the beginning of the year. 
 
   In the December data for Tokyo's wards' Consumer Price Index (CPI), the core CPI excluding fresh food rose 2.3% year-on-year, while the core CPI excluding fresh food and energy rose 2.6% year-on-year. The rate of increase slowed significantly due to government policies aimed at curbing price increases. Previously high food prices saw a decline in year-on-year growth, and the government's gradual expansion of subsidies following the abolition of the temporary gasoline tax also contributed to lower energy prices. However, underlying upward pressure remains high. 

 
   Industrial production fell 2.6% month-on-month in November, the first decline in three months. This decline was mainly due to a backlash after a significant increase in October, primarily driven by weak performance in the automotive, electrical machinery, and information and communication equipment industries. Furthermore, inventories fell sharply by 3.0% month-on-month in November, reaching their lowest level since the second half of 2021. Combined with the production forecast index (up 1.3% month-on-month in December and up 8.0% in January) and the revised figure released by Japan's Ministry of Economy, Trade and Industry (down 0.6% month-on-month in December), it appears that manufacturers are planning to increase production at the beginning of the year in response to the larger-than-expected inventory reduction.