Japan core inflation exceeds 2% target, cementing rate hike chance

Key facts

• Core inflation rose 2.1% in September, exceeding the BOJ's 2% target.
• The BOJ raised its key interest rate to 1.25% last month.
• An index excluding fresh food and fuel rose 2.4% in September.

Japan's annual core consumer inflation exceeded the Bank of Japan's 2% target in September for the first time in nine months, data released on Friday showed. The core consumer price index (CPI), which excludes volatile fresh food but includes fuel costs, rose 2.1% from a year earlier, matching market forecasts and following a 1.7% increase in August. An index that strips away the effects of both volatile fresh food and fuel, closely watched by the BOJ, rose 2.4% in September from a year earlier, up from 1.9% in August. The central bank raised its key rate to a 31-year high of 1.25% last month, signaling a shift toward guarding against underlying inflation overshooting its target and raising the prospect of additional rate hikes. Governor Kazuo Ueda has warned that underlying inflation may overshoot the target due to pressures from the Middle East conflict, a weak yen, and brisk AI demand.