The inflation figures for the Greater Tokyo Area, published this morning, came as a surprise across the board, Commerzbank's FX analyst Michael Pfister notes.

Interest rate hike in December to be the last one

"The overall rate and the rate excluding fresh food were three-tenths of a percentage point lower than expected, and the rate excluding energy and fresh food was even four-tenths lower. As inflation in the Greater Tokyo Area is usually a reliable indicator of inflation in Japan as a whole, it can be assumed that inflationary pressure across the country is also likely to be lower than originally thought."

"After many months of elevated inflation, it seems that inflationary pressure is slowly beginning to ease. Price pressure is mainly driven by food prices, partly due to poor rice harvests. This effect now seems to be slowly subsiding. Although Tokyo's inflation remains above target, it is moving in the right direction."

"Following the Bank of Japan's last meeting, the market began to anticipate an interest rate hike as early as next month. However, the figures are likely to make such a move difficult. We still expect an interest rate hike to 0.75% in December, but the inflation figures confirm our view that this will be the last one. Any market participant currently hoping for further interest rate hikes is likely to be disappointed in the coming weeks."