Data released on Friday showed that Japan's September core consumer price index (CPI) rose 2.1% year-on-year, exceeding the Bank of Japan's 2% inflation target for the first time in nine months, indicating that price pressures are spreading and reinforcing market expectations for a near-term interest rate hike.
The figure matched the median market forecast, compared with a 1.7% year-on-year increase in August. The core CPI excludes volatile fresh food prices but includes fuel costs.
The index more closely watched by the Bank of Japan, which strips out both fresh food and fuel costs, rose 2.4% year-on-year in September, up from 1.9% in August, and is regarded as a better gauge of demand-driven price pressures.
The data indicate that prolonged conflict in the Middle East pushing up fuel costs, a weak yen raising import prices, and price pressures from strong artificial intelligence (AI) demand are undermining the effects of government fuel subsidies.
The Bank of Japan last month raised its key interest rate to a 31-year high of 1.25%, signaling a shift toward guarding against a potential inflation overshoot and increasing the likelihood of further rate hikes.
Citing sources, Reuters reported that the Bank of Japan is expected to keep policy unchanged next week but may revise up its inflation forecasts and hint at readiness to continue pushing still-low borrowing costs higher.
Bank of Japan Governor Kazuo Ueda has warned that underlying inflation — the broad price trend after stripping out temporary, one-off factors — could exceed the 2% target due to price pressures from the Middle East conflict, a weak yen, and robust AI demand.
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