Japan Core Inflation Hits 2.1%, Signaling Potential Near-Term Rate Hike
Japan's core inflation reached 2.1% in September, exceeding the Bank of Japan's target and fueling expectations for further interest rate increases.
POLICY WIRE — Tokyo, Japan — Japan’s core inflation rate climbed to 2.1% in September, marking its highest level this year and surpassing the Bank of Japan’s primary target. This acceleration, which rose from 1.7% in the previous month, aligns with economist projections and reflects mounting pressure from elevated import costs and a weakened yen.
The Bank of Japan’s preferred metric, known as core-core inflation—which excludes both fresh food and energy—reached 2.4%. Abhijit Surya, a senior APAC economist at Capital Economics, noted that the acceleration was significant, particularly as it persisted despite a sharp decline in fresh food inflation and ongoing energy deflation.
While rice prices saw a 20.6% year-on-year drop, goods inflation climbed to 2.8% from 2.6% in August. Surya suggested that indirect effects from energy shocks continue to influence the market, with inflation in other industrial products reaching a 13-month high of 3.9%.
Consumer energy prices dipped 0.6% in September, largely due to subsidies provided by the Takaichi administration. However, Finance Minister Satsuki Katayama indicated to parliament that the nation is nearing a period of sustained inflation driven by wage growth, while acknowledging that rising import costs remain a factor.
The Bank of Japan previously raised interest rates to a three-decade high of 1.25% in September. With underlying inflation now exceeding the 2% target, analysts anticipate further monetary tightening, with some forecasting an additional rate hike as early as December.
Government data shows that price increases in durable goods and public utility charges are primary drivers of the current trend, while services inflation rose to 1.5%. Meanwhile, the Lower House has begun debating a bill to reduce the consumption tax on food from 8% to 1% for a two-year period.
Market reaction to the data saw the Nikkei 225 index fall 1.62% on Friday, while the yen strengthened to 156.15 against the dollar. Minister Katayama maintained that there is no conflict between the government’s tax relief plans and the central bank’s efforts to manage inflation.
Reporting by Policy-Wire (PW)
