(Bloomberg) -- Japan’s inflation is set to cool sharply from its peak as Prime Minister Fumio Kishida’s energy subsidies kick in, complicating the picture for investors trying to gauge whether the central bank is right about the path for core inflation.

Early inflation figures for Tokyo, due Friday, are expected to show core consumer price growth slowing a full percentage point to 3.3% in February, from January’s four-decade high. 

A figure above that may bolster bets on a Bank of Japan policy tweak, while a weaker number would embolden dovish wagers, according to comments from market watchers.

The slowdown in the capital’s prices will likely be mirrored in nationwide figures coming out later in March. Government energy measures, including subsidies of around 20% on household electricity bills, are expected to be the main factors behind the deceleration. 

Economists have been aware of the likely impact of the subsidies for months but they will still need to unpack the data to see if the central bank is judging the underlying trend and its policy response accurately. 

“There is no doubt that Tokyo inflation will plunge but it’s important to see by how much,” said Koya Miyamae, senior economist at SMBC Nikko Securities. 

If the data comes in at 3.5% or above, that would suggest the inflation momentum is stronger than expected, Miyamae said. If it’s around 3.1% or less, it would point to weakness, he added.

So far the BOJ sees its key inflation gauge slowing below 2% in the year starting in April, and averaging below that mark in the following fiscal year. But some analysts see the risk of the BOJ underestimating the inflationary trend, as have many central bankers across the globe in their own economies.

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Tokyo CPI data “could confirm the inflationary pressure, and in fact, we actually see prices of goods rising in our daily lives as companies are consistently increasing prices albeit at a gradual pace,” said Takahiro Sekido, chief Japan strategist at MUFG Bank Ltd. in Tokyo and a former BOJ official. “Speculation lingers that the BOJ will alter the current monetary easing.”

Governor nominee Kazuo Ueda repeatedly said the BOJ should continue with its easing policy for now in his parliamentary hearings. But given expectations that the academic will base decisions off data, a surprise from the Tokyo CPI figures risks fueling speculation of a recalibration of the BOJ’s policy path.

Traders continue to price in a shift, according to the swaps market.

“Ueda seems to emphasize the need to monitor underlying inflation — by that I think he means core core inflation and wages,” said SMBC Nikko’s Miyamae, referring to consumer prices excluding both fresh food and energy. He sees that gauge slowing below 2% around October.

“But that doesn’t necessarily mean Ueda won’t do anything this year, as side effects are piling up from the yield curve control program,” he said. “Ueda could adjust that while not proceeding with normalization.”

--With assistance from Yuko Takeo.

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