Japan’s core inflation rises above Bank of Japan target to 2.1%

Japan’s core consumer inflation rose to 2.1% in September from 1.7% in August, putting it above the Bank of Japan’s 2% target for the first time in nine months. The figures reported in Tokyo on October 23 add to pressure on the central bank as it considers whether to raise interest rates again after an increase in September.

The core consumer price index excludes volatile fresh food prices but includes fuel. Reuters reported that the September reading matched the median market forecast of 2.1%. CNBC described the reading as the highest this year.

Inflation beyond fuel prices

Reuters linked the broader price pressure to higher fuel costs associated with the prolonged Middle East conflict, import prices elevated by a weak yen and demand tied to artificial intelligence. It reported that these pressures were blunting the effect of government fuel subsidies. CNBC also identified energy and import costs as drivers of inflation, citing the yen’s weakness as a factor in the cost of imported goods.

What the figures mean for Bank of Japan rates

The Bank of Japan raised its key interest rate to 1.25% in September, a 31-year high, Reuters reported. The new inflation figures therefore arrive only a month after the bank increased borrowing costs, sharpening attention on whether price growth will prompt another move. The core reading is above the bank’s target, while the measure excluding fuel has also accelerated.

Reuters reported that the bank was expected to leave rates unchanged at its meeting the following week. Sources cited in earlier Reuters reporting said it might raise its inflation forecast and signal readiness for further increases. CNBC said higher inflation could prompt another rate rise this year.