Tokyo core inflation accelerates in September, boosting BOJ rate hike case

Annual core inflation in Tokyo accelerated in September, underscoring mounting price pressures and bolstering the case for the Bank of Japan to implement further interest rate hikes. The core consumer price index for the capital, which excludes fresh food but includes fuel costs, rose 2.7% from a year earlier. This marks an acceleration from the 1.8% gain recorded in August and surpassed the median market forecast of 2.4%.

An index that strips out the impact of fresh food and fuel, closely monitored by the BOJ as an indicator of underlying inflation trends, increased by 3.0% in September, up from 2.0% in August. While government fuel subsidies had previously kept inflation below the BOJ's target, recent surges in wholesale prices, driven by Middle East conflict, a weak yen, and strong AI-related demand, highlight increasing price pressures.

The Bank of Japan recently increased its key interest rate to a 31-year high. The central bank's governor has indicated that the bank is entering a new phase focused on preventing inflation from exceeding its target, signaling the possibility of additional rate increases.