Tokyo Core Inflation Hits 10-Month High, BOJ Interest Rate Hikes Likely

The Bank of Japan's inflation concerns have been validated as Tokyo's core consumer price index rose 2.7 percent in September from the same month a year earlier, marking its fastest pace in ten months.

This data release has strengthened the case for further interest rate hikes by the central bank. The BOJ raised its key rate to a 31-year high last month and signaled that it is now focused on preventing underlying inflation from overshooting its target.

Nationwide core inflation will likely exceed three percent in coming months, according to Yoshiki Shinke, senior executive economist at Dai-ichi Life Research Institute. He notes that even when discounting one-off factors, the inflation numbers are strong and show firms steadily passing on rising costs from a weak yen and the Iran war.

The core consumer price index stripping away volatile fresh food and fuel prices rose 3.0 percent in September after an 2.0 percent gain in August, for its fastest year-on-year rise since August 2025. This increase is partly due to rising raw material costs and phasing out of water bill subsidies.