Japan's September core CPI rose 2.1% year-on-year, exceeding the central bank's 2% target for the first time in nine months! Broadening inflation strengthens expectations of a near-term rate hike.

Data released on Friday showed that Japan's September core Consumer Price Index (CPI) rose 2.1% year-on-year, exceeding the Bank of Japan's 2% inflation target for the first time in nine months, indicating that price pressures are spreading and reinforcing market expectations of a near-term rate hike. The figure matched the median market forecast, following a 1.7% year-on-year rise in August. The core CPI excludes volatile fresh food but includes fuel costs. The index more closely watched by the Bank of Japan, which strips out both fresh food and fuel costs, rose 2.4% year-on-year in September, up from 1.9% in August, and is seen as a better gauge of demand-driven price pressures. The data indicate that prolonged conflict in the Middle East pushing up fuel costs, a weak yen raising import prices, and price pressures from strong artificial intelligence (AI) demand are eroding the effects of government fuel subsidies. The Bank of Japan raised its key interest rate to a 31-year high of 1.25% last month, signaling a shift toward guarding against potential inflation overshoot and raising the likelihood of further rate hikes. According to sources cited by Reuters, the Bank of Japan is expected to keep policy unchanged next week but may revise up its inflation forecasts and hint at readiness to continue pushing up still-low borrowing costs. Bank of Japan Governor Kazuo Ueda has warned that underlying inflationthe broad price trend after stripping out temporary, one-off factorscould exceed the 2% target due to price pressures from the Middle East conflict, a weak yen, and strong AI demand.