Japan core inflation exceeds BOJ target, cements near-term rate hike chance

By Leika Kihara and Takahiko Wada

TOKYO, Oct 23 (Reuters) – Japan’s annual core consumer inflation exceeded the central bank’s 2% target in September for the first time in nine months, data showed on Friday, a sign of broadening price pressure that cements the case for a near-term interest rate hike.

The figures underscored how higher fuel costs from the prolonged Middle East conflict, elevated import prices driven by the weak yen and price pressures from robust AI demand were blunting the impact of government fuel subsidies.

Having just raised interest rates last month, the Bank of Japan is set to stand pat on policy next week but may revise up its inflation forecast and signal its readiness to keep pushing up still-low borrowing costs, sources have told Reuters.

The core consumer price index (CPI), which excludes volatile fresh food but includes fuel costs, rose 2.1% in September from a year earlier, data showed, matching a median market forecast. It followed a 1.7% rise in August.

An index that strips away the effects of both volatile fresh food and fuel, which is closely watched by the BOJ as a better gauge of demand-driven price pressures, rose 2.4% in September from a year earlier after increasing 1.9% in August.

The BOJ raised its key rate to a 31-year high of 1.25% last month, signalling a shift to guarding against underlying inflation overshooting its target and raising the prospect of additional rate hikes.

BOJ Governor Kazuo Ueda has warned that underlying inflation, or the broad price trend stripping away temporary, one-off factors, may overshoot its 2% target on price pressures from the Middle East conflict, a weak yen and brisk AI demand.

(Reporting by Leika Kihara and Takahiko Wada; Editing by Jacqueline Wong)

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