By Megumi Fujikawa

TOKYO--Consumer inflation in the Tokyo metropolitan area grew at a slower pace in February, cooling speculation about an early interest-rate increase by the Bank of Japan.

Consumer prices excluding volatile fresh food rose 2.2% in February from a year earlier, government data showed Friday. That was lower than January's 2.5% increase and the 2.3% growth expected in a poll of economists by data provider Quick.

The rise in energy prices slowed as the government revived subsidies for electricity and gas bills. Overall consumer prices in Tokyo rose 2.9% on year in February, remaining well above the Bank of Japan's target of 2%.

Tokyo figures are considered an early indicator of nationwide trends.

With recent data showing a steady recovery in the Japanese economy, expectations for additional rate increases by the central bank have been heightening. The BOJ has said it would seek further monetary tightening if the economy and inflation develop in line with its projections.

However, the weaker-than-expected Tokyo inflation figures cooled the expectations, causing the yen to weaken to around 150.15 versus the dollar from around 149.40 at the Tokyo stock market close on Thursday. The pair last stood at 149.65.

Policymakers are hoping that higher wages will help create a virtuous cycle of spending and mild inflation. Separate government data released Friday showed that retail sales rose 3.9% in January from a year earlier despite rising prices.

Meanwhile, industrial production fell 1.1% in January from the previous month, according to another set of government data. That compared with the 0.2% drop in December and marked the third straight month of decline. Production slowed ahead of the Chinese Lunar New Year.

Japanese companies expect output to increase 5.0% in February but fall back by 2.0% in March.

Write to Megumi Fujikawa at megumi.fujikawa@wsj.com

(END) Dow Jones Newswires

February 27, 2025 19:48 ET (00:48 GMT)

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