Japan's core inflation exceeds BOJ target, cements near-term rate hike chance
TLT•Japan's core CPI rose 2.1% year over year in September, above the Bank of Japan's 2% target for the first time in nine months. A measure excluding fresh food and fuel climbed 2.4%, while the BOJ is expected to keep rates steady next week and may raise its inflation forecast.
1. Inflation rises above target
Japan's core consumer price index, which excludes fresh food but includes fuel, rose 2.1% in September from a year earlier, accelerating from 1.7% in August and matching the median market forecast. The index excluding both fresh food and fuel rose 2.4%, after a 1.9% increase in August.
2. Price pressures broaden
Goods prices rose 2.8% year over year, up from 2.6% in August, while services inflation accelerated to 1.5% from 1.2%. Higher fuel costs, elevated import prices linked to the weak yen and demand related to AI were offsetting the effect of government fuel subsidies.
3. BOJ policy outlook
The BOJ is expected to hold rates steady at its meeting next week, while potentially revising up its inflation forecast and signaling readiness to continue raising borrowing costs. Many analysts expect a December hike to 1.50%, with the terminal rate forecast around 1.75% or 2%; one analyst said risks were shifting toward a higher peak than his 2% forecast.
