Japan’s core consumer inflation held near the Bank of Japan’s (BOJ) 2% target in August, reinforcing expectations that the central bank will raise interest rates to a 31-year high later on Friday.
The core consumer price index (CPI), which excludes fresh food but includes fuel costs, rose 1.7% year-on-year in August, easing slightly from 1.8% in July and below the 1.8% increase expected by economists.
A separate index that excludes both fresh food and fuel, which the BOJ closely watches as a gauge of underlying demand-driven inflation, rose 1.9% year-on-year in August.
Core inflation has remained below the BOJ’s 2% target for eight consecutive months, partly due to government subsidies aimed at reducing utility bills despite broader increases in goods prices.
However, higher fuel costs linked to the Middle East conflict and rising import prices caused by a weaker yen have added to inflationary pressures.
The BOJ has warned of the risk that inflation could overshoot its 2% target as energy and import costs rise.
The central bank raised its policy rate to 1% in June, saying Japan was approaching a sustained achievement of its inflation target. It kept rates unchanged in July but signalled that a near-term increase was increasingly likely as price pressures persisted.
The latest inflation data was released hours before the BOJ concludes its two-day policy meeting, with economists widely expecting the central bank to raise its policy rate by 25 basis points to 1.25%, its highest level in 31 years.
Reuters sources said the BOJ could also signal a faster pace of future tightening if rising price pressures increase the risk of underlying inflation moving away from its 2% target.
Economists polled by Reuters expect the policy rate to reach 1.5% by the end of March next year and 1.75% in the second quarter of 2027.
