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Japan’s CPI over the next two months will be shaped by a mix of expiring and newly introduced subsidies. Over the past two years, national electricity and gas subsidies have played a key role in containing energy inflation, while Tokyo went further by introducing temporary water fee waivers during the summer to curb utility costs which expired in September 2025.

With national utility subsidies ending in October 2025, many utility providers have already announced rate hikes in anticipation of limited further government intervention. As a result, Turnleaf expects headline inflation to remain elevated as utility prices normalize. However, lower global fuel costs could temper the overall inflationary impact from the removal of energy subsidies.

Looking ahead, the long-anticipated removal of the provisional gasoline tax expected in November 2025 should partially offset the impact of ending gasoline subsidies scheduled to expire in April 2026, keeping fuel costs relatively contained.

Beyond energy, demographic and social policy initiatives will also influence inflation dynamics. Tokyo’s move to make daycare free as of September 2025, along with a nationwide expansion of education subsidies set for April 2026, will lower household education-related costs. In addition, the introduction of free childbirth coverage may help reduce healthcare-related expenses, though the broader macro impact will depend on whether these measures successfully encourage higher birth rates.

Despite near-term price volatility from the expiry of subsidies, Turnleaf expects Japan’s CPI to trend lower toward 1% YoY over the next 12 months, with intermittent spikes through year-end as policy transitions take effect.