BOJ Rate Hike Expectations Strengthen as Tokyo Core Inflation Hits 2-Year High

Tokyo's core inflation accelerated for the third straight month in August, strengthening expectations that the Bank of Japan (BOJ) could raise interest rates in September. Core consumer price index (CPI), excluding volatile fresh food prices, rose 1.8% from a year earlier, slightly above forecasts and bringing inflation closer to the BOJ's 2% target.

The August reading followed a 1.7% increase in July, driven largely by continued price increases for food items. A separate index that excludes fresh food and fuel prices rose 2.0% in August, up from 1.8% in July, adding to rate-hike pressure.

BOJ Deputy Governor Ryozo Himino highlighted growing inflation risks, strengthening market expectations of a rate increase at the central bank's September 17-18 policy meeting. Most market participants currently expect the BOJ to raise its policy rate to 1.25%.