BOJ Rate Hike Odds Rise as Japan Inflation Gauge Exceeds Expectations

Japan's underlying inflation gauge has risen to 2.3% in July from a year earlier, outperforming expectations and strengthening the case for a Bank of Japan rate hike in September.

The BOJ's underlying inflation gauge is one of several new indicators introduced by Governor Kazuo Ueda in March to better capture the underlying price trend.

Excluding fresh food and government policy effects, the measure shows that companies are passing on higher costs to consumers due to rising energy prices caused by the Middle East conflict.

The markets are pricing in an 80% chance of a BOJ rate increase at its next monetary policy meeting on September 18, with some forecasts predicting Japan's consumer inflation rate excluding fresh food may climb as high as 3% in the first quarter of 2027.