BOJ Faces Rising Inflation Pressure as Tokyo Core Rate Jumps

The Bank of Japan's inflation target is under increasing pressure after Tokyo core inflation rose to its fastest pace in 10 months, reaching 2.7% in September from the same month a year earlier. The data was above the median market forecast of 2.4% and marked the first time the BOJ's target of 2% has been exceeded since January.

An index stripping away volatile fresh food and fuel prices, which is closely watched by the BOJ as a more accurate gauge of trend inflation, rose 3.0% in September after a 2.0% gain in August. Yoshiki Shinke, senior executive economist at Dai-ichi Life Research Institute, attributed the jump to rising raw material costs and said households also paid more for personal computers and tablets due to a spike in chip prices.

Market participants have reduced bets of a back-to-back hike this month but many expect the BOJ to raise its policy rate in December to forestall the risk of inflation overshoot. Shinke stated that nationwide core inflation will likely exceed 3% in coming months and with upside risks to underlying inflation, the BOJ 'will be on the hook for another rate hike as soon as December.'