Japan's Core Inflation Gauge Accelerates to 2.6%, Supporting Further Rate Hikes
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The Bank of Japan's measure of underlying inflation accelerated in August, rising to 2.6% year-on-year from 2.3% in July, well above its 2% target, according to a report released Friday. The gauge excludes fresh food and special factors such as government subsidies for gasoline and utilities. A narrower measure excluding fresh food, energy, and special factors rose to 1.8% from 1.6%. The data provides support for the BOJ's stance on further interest rate increases, following its decision last week to accelerate the pace of hikes. The assessment of inflation strength has become particularly important after two board members, appointed by Prime Minister Shigeru Ishiba, voted against the rate hike, citing inflation concerns. Market pricing via overnight index swaps indicates investors see over a 90% probability of another rate hike by December. A September economist survey showed 58% expect the next hike in January, while about 35% expect it in December. The BOJ's next rate decision is scheduled for October 30.
Source report
A key measure of underlying inflation tracked by the Bank of Japan (BOJ) accelerated last month, moving well above the central bank's target and providing support for further increases in the benchmark interest rate.
According to a BOJ report released on Friday, the consumer price index (CPI) excluding fresh food and special factors—such as government subsidies for gasoline and utilities—rose 2.6% year-on-year in August, up from 2.3% in July. Meanwhile, the index excluding fresh food, energy, and special factors increased to 1.8% from 1.6% in the previous month.
The data comes after the BOJ decided last week to accelerate the pace of rate hikes, emphasizing the risk that inflation could remain above its 2% target. While government data show headline inflation below the BOJ's target—largely due to measures aimed at curbing living costs—the central bank's adjusted inflation gauge released on Friday reinforces its stance in favor of further tightening.
The assessment of inflation strength has become particularly significant following two board members' votes 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 dissent weakened expectations of a hawkish BOJ stance and contributed to a weaker yen.
Market pricing via overnight index swaps suggests investors see a greater than 90% probability of another rate hike by the BOJ before December. A survey of economists conducted ahead of the September meeting found that 58% of respondents expect the next rate increase to occur in January, while approximately 35% anticipate it in December.
The BOJ is scheduled to announce its next interest rate decision on October 30.
Source
智通财经网Regional
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Bank of Japan July minutes show board members urged faster rate hikes as inflation accelerates