BOJ Rate Hikes Expected as Tokyo Inflation Accelerates to 2.7% YoY

The Tokyo inflation data has reinforced expectations that the Bank of Japan (BOJ) will continue tightening monetary policy. The BOJ's preferred inflation measure, excluding food and fuel, rose 3.0% in September from a year earlier, accelerating from August's 2.0% increase.

Tokyo's core Consumer Price Index (CPI), which excludes fresh food but includes fuel costs, rose 2.7% in September from a year ago, beating the median market forecast of 2.4%. This acceleration marks the second consecutive month that Tokyo inflation has increased, and comes ahead of the BOJ's next policy meeting on October 29-30.

The rising inflation data is likely to shape the BOJ's fresh quarterly inflation forecasts at its next policy meeting. Governor Kazuo Ueda has signaled that the bank has entered a new phase focused on preventing inflation from overshooting its target, leaving the door open to further hikes. The recent rise in wholesale inflation underscores growing pressure from the Middle East conflict and a weak yen.