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Japan's Core Inflation Accelerates to 2.6%, Supporting Further Rate Hikes
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Japan's central bank reported that its key measure of underlying inflation accelerated to 2.6% year-on-year in August, up from 2.3% in July, significantly exceeding its 2% target. The Bank of Japan (BOJ) released the data on Friday, which excludes volatile fresh food and special factors such as government subsidies for gasoline and utilities. A narrower measure stripping out energy and special factors rose to 1.8% from 1.6%. The report provides support for the BOJ's recent decision to accelerate its pace of rate hikes, as it emphasizes the risk of inflation persistently exceeding its target. The assessment of inflation strength has become particularly important after two board members, appointed by Prime Minister Shigeru Ishiba, voted against the rate hike last week, citing inflation concerns. Market pricing indicates over 90% probability of another rate hike by December, while a September economist survey showed 58% expect the next move in January and 35% in December. The BOJ's next rate decision is scheduled for October 30.
Source report
The Bank of Japan's key measure of underlying inflation accelerated last month, moving well above its target level and providing justification for continued interest rate increases, according to a report released on Friday.
Key Inflation Data
- August CPI (excluding fresh food and special factors): Rose 2.6% year-on-year, up from 2.3% in July
- Special factors excluded: Government subsidies for gasoline and utilities
- CPI excluding fresh food, energy, and special factors: Rose to 1.8% from 1.6% in July
Policy Context
The Bank of Japan decided last week to accelerate the pace of rate hikes, emphasizing the risk that inflation could exceed its 2% target. While government data shows headline inflation remains below the BOJ's target—largely due to measures aimed at curbing living costs—the central bank's adjusted inflation gauge released Friday supports its stance for further tightening.
Board Division and Market Expectations
The assessment of inflation strength has become particularly significant after two board members voted against raising rates last week:
- Asada Toichiro and Sato Ayano, both appointed by Prime Minister Ishiba Shigeru, opposed the rate hike, citing inflation concerns
- Their opposition weakened expectations for the BOJ's hawkish stance and contributed to yen weakness
Market Pricing
- Overnight index swaps indicate investors see a greater than 90% probability of another rate hike by December
- A survey of economists conducted before the September meeting found:
- 58% expect the next rate hike in January
- Approximately 35% expect the next hike in December
The Bank of Japan is scheduled to announce its next interest rate decision on October 30.
Source
智通财经网Regional
Part of this Story
Japan’s core inflation accelerates to 2.6%, backing further BOJ rate hikes