A gauge used by the Bank of Japan to measure underlying inflation has climbed to its highest level in three years, well above the central bank's 2% target, giving authorities justification to keep raising interest rates.
A report released by the Bank of Japan on Tuesday showed that consumer prices excluding fresh food and special factors rose 3.2% year-on-year in September, accelerating from 2.6% in the previous month.
This result may reinforce market speculation about an imminent rate hike. The Bank of Japan had previously raised borrowing costs to 1.25% in September, marking its fastest pace of tightening since 1990.
The market broadly expects the Bank of Japan to keep policy unchanged this Friday, although many predict it may announce that underlying inflation has finally reached its 2% target — more than 13 years after that goal was established.
Surveys show that more than 80% of economists expect the Bank of Japan to raise rates at its December meeting. None of the economists surveyed anticipated action this Friday.
Special factors affecting the data include Japanese government subsidies for gasoline and utilities. These measures, aimed at easing the cost-of-living crisis, have slowed the pace of consumer price increases.
Data released by the Japanese government last week showed that consumer prices excluding fresh food rose 2.1% year-on-year in September.
Recent data supports the Bank of Japan's strategy of continuing to raise its benchmark interest rate. Data released earlier on Tuesday showed that Japan's services producer price index rose, affected by Middle East conflicts.
Bank of Japan Governor Kazuo Ueda said this month that he can no longer tolerate rising underlying inflation, as it is already very close to 2%, signaling his intention to continue raising rates.
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