According to Xinhua News Agency, the consumer price index in August 2026 rose 2.6% year on year excluding fresh food, falling below the 2% target. Meanwhile, the BOJ raised its policy rate to 1.25% at its September 2026 meeting, reviving concerns over the yen's direction.
Rising prices in Japan are reducing household purchasing power and making economic policy management more difficult. According to data reported by Xinhua News Agency, the consumer price index in August 2026, excluding fresh food and promotional items, rose 2.6% year on year, but did not exceed the 2% target, indicating that the decline in purchasing power is widespread.
Consumption in the Japanese economy was nearly flat in the second quarter of 2026, while inflation-adjusted household spending recorded its eighth consecutive year-on-year decline. With private consumption accounting for more than 50% of GDP, weak demand is reportedly putting pressure on corporate earnings.
Shingo Ide (井出慎吾) of NLI Research Institute said that if companies are unable to pass on various cost increases, pressure on profits will intensify and business operations will become more difficult.
Regarding the relationship between foreign exchange and monetary policy, the risks of yen depreciation and higher import costs remain, while the yen's recovery was limited, partly owing to the Federal Reserve's rate hikes. The BOJ raised its policy rate to 1.25% at its September monetary policy meeting. A Reuters survey found that 89% of economists expect the government's fiscal policy to drive further yen depreciation.