Tokyo’s core inflation accelerated to a 10-month high in September, intensifying price pressures and reinforcing expectations that the Bank of Japan (BOJ) could raise interest rates again as early as December, Reuters reported.
Core consumer prices, excluding fresh food but including fuel, rose 2.7% year-on-year in September, sharply higher than August’s 1.8% increase and above market expectations of 2.4%.
The reading was the fastest since November and pushed inflation above the BOJ’s 2% target for the first time since January.
A separate index excluding both fresh food and fuel, closely watched as a gauge of underlying inflation, jumped 3% from 2% in August, marking its strongest increase since August 2025.
The acceleration partly reflected the phasing out of water bill and childcare subsidies, but prices also rose across food, daily necessities, computers and tablets as businesses passed on higher raw material, energy and semiconductor costs.
Service inflation also strengthened to 2.3% from 1.4%, pointing to growing pass-through from higher wages.
Dai-ichi Life Research Institute senior executive economist Yoshiki Shinke said the data showed firms were steadily passing higher costs onto consumers, adding that nationwide core inflation could exceed 3% in coming months.
The data will be closely scrutinised ahead of the BOJ’s Oct 29-30 policy meeting, when the central bank is due to update its inflation forecasts.
While markets have scaled back expectations for another rate hike this month, economists increasingly see December as a possibility if inflation remains elevated.
The BOJ raised its key policy rate to a 31-year high last month, with Governor Kazuo Ueda signalling greater focus on preventing underlying inflation from overshooting the bank’s 2% target.
Renewed increases in crude oil prices could add further pressure, potentially prompting the BOJ to revise its inflation forecasts higher at its October meeting.
