Japan's Core Inflation Accelerates, Boosting Case for Further Rate Hike
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Japan's core inflation accelerated in August, with the Bank of Japan's preferred measure rising to 2.6% year-on-year from 2.3% in July, significantly above the central bank's 2% target. The data, which excludes fresh food and temporary government subsidies for gasoline and utilities, supports the case for further interest rate increases. The Bank of Japan recently accelerated its rate hike pace and warned of upside risks to inflation. Two board members, Tomoichi Asada and Ayano Sato, dissented at last week's rate decision, citing inflation concerns, which weakened market expectations of a hawkish board and pushed the yen lower. Both were nominated by Prime Minister Shigeru Ishiba's predecessor. Overnight index swaps show investors see over a 90% probability of another rate hike by December. A Bloomberg survey before the September meeting found 58% of economists expect the next hike in January, while about 35% expect it in December. The Bank of Japan's next policy decision is scheduled for October 30.
Source report
Japan's central bank saw its key inflation gauge accelerate last month, significantly exceeding its target level. Authorities have warned of the risk of inflation overshooting, providing support for continued policy rate increases.
Key Data from August Report
According to a report released by the Bank of Japan (BOJ) on Friday:
- Core consumer prices (excluding fresh food and special factors) rose 2.6% year-on-year in August, up from 2.3% in July.
- Special factors include government subsidies for gasoline and utility costs.
- A broader measure excluding fresh food, energy, and special factors rose from 1.6% to 1.8%.
Policy Context
The BOJ accelerated its rate hike pace last week, emphasizing the risk of inflation exceeding its 2% target. While government data show that overall inflation remains below the BOJ's target—due to policies aimed at curbing living costs—the indicator released Friday, which strips out policy distortions, reinforces the central bank's stance on continued rate increases.
Board Division and Market Implications
The importance of this inflation assessment has grown further. Two board members—Tomoyuki Asada and Ayano Sato—voted against last week's rate hike decision, weakening market expectations of a hawkish board and contributing to yen weakness. Both were nominated to the board earlier this year by Prime Minister Shigeru Ishiba and cited inflation concerns as grounds for their dissent.
Market Expectations
Overnight index swap pricing reflects that investors see a over 90% probability of another rate hike before December. A Bloomberg survey of economists conducted before the September policy meeting found:
- 58% of respondents expect the next rate hike in January
- Approximately 35% expect it in December
The Bank of Japan is scheduled to announce its next policy decision on October 30.
Source
新浪财经Regional
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Japan’s core inflation accelerates to 2.6%, strengthening case for BOJ rate hikes