Tokyo Core Inflation Hits 2.7%, BOJ Interest Rate Hikes Likely

Tokyo's core inflation rate accelerated in September to its fastest pace in 10 months, according to data released on October 2. The annual core consumer price index, which excludes fresh food but includes fuel costs, rose 2.7% in September from a year earlier, surpassing the median market forecast of 2.4%. This marked the first time Tokyo's inflation rate exceeded the Bank of Japan's (BOJ) 2% target since January.

The BOJ will consider this data when issuing fresh quarterly inflation forecasts at its next policy meeting on October 29-30. Masato Koike, a senior economist at Sompo Institute Plus, expects the BOJ to raise interest rates in December due to rising energy costs and second-round effects from the Middle East conflict.

The Tokyo core inflation rate exceeded expectations despite being partly driven by the phasing out of water bill subsidies. Households paid more for goods and services such as food, transportation, and hotel bills. Service-sector inflation also accelerated to 2.3% in September, indicating that firms were passing on rising labor costs from a tight job market.