BOJ Weighs Rate Hike as Tokyo Inflation Surges to 2.7%

Tokyo's inflation rate has accelerated to 2.7% in September, exceeding market forecasts of 2.4%, according to the Statistics Bureau of Japan. The core Consumer Price Index (CPI) rose from 1.8% in August, with a broader increase across categories rather than just one volatile category.

The BOJ is taking notice of this trend, as service inflation increased sharply to 2.3%. This matters because imported energy inflation can fade when oil prices fall, while services inflation can become more persistent and harder to control.

The labour market is still relatively tight, with an unemployment rate of 2.5% in August and employment increasing by 140,000 from a year earlier. However, corporate inflation expectations remain elevated, and the BOJ may need to consider tightening policies to prevent inflation from settling above target.