Tokyo Inflation Surges, Reinforcing Expectations for Further BOJ Rate Hikes

Tokyo consumer inflation accelerated in September, with core prices rising faster than expected, according to recent data. The core Consumer Price Index, which excludes volatile fresh food prices, rose 2.7% year-on-year in September, exceeding economists' median forecast of 2.4%. This marks a significant increase from the 1.8% recorded in August.

The broader Tokyo Consumer Price Index also increased by 2.7% from a year earlier, compared to 1.9% in August. Additionally, the index excluding food and energy rose 0.4% month-on-month after a 0.7% gain in the previous month.

The data is seen as a leading indicator of nationwide inflation trends, showing that underlying price pressures remain above the Bank of Japan's (BOJ) 2% target. The BOJ raised its policy rate to 1.25% in September, and some policymakers favour faster rate hikes to prevent inflation from overshooting its target.

However, others urge caution given risks to consumption and growth. The stronger Tokyo inflation reading is likely to keep markets focused on the pace of BOJ tightening.