Japan’s Price Growth Accelerates Ahead of BOJ Inflation Update, data released today confirmed, putting renewed pressure on the Bank of Japan (BOJ) to signal further policy normalisation at its upcoming meeting.
The latest figures show that the core consumer price index (Core inflation rises) for September increased, reversing a three-month trend of deceleration and underscoring that significant price pressures continuing in the Japanese economy.
This acceleration keeps inflation well above the central bank’s 2% target, intensifying market anticipation for the Bank of Japan’s next policy decision and its updated quarterly outlook.
Headline Points
• Core CPI Rises: Japan’s national core Consumer Price Index (CPI), which excludes volatile fresh food prices but includes fuel, accelerated to 2.9% year-on-year in September, up from 2.7% in August.
• Key Drivers: The main drivers behind the acceleration were a renewed rise in energy costs and stubbornly high food prices.
• Underlying Inflation Eases: The Bank of Japan’s preferred measure, the “core-core” index (excluding both fresh food and energy), eased slightly to 3.0% from 3.3%, suggesting a subtle slowdown in underlying demand-driven price pressures.
• BOJ Policy Anticipation: The data arrives just ahead of the BOJ’s two-day policy meeting next week, where the central bank will decide whether to raise the short-term policy rate and issue its new quarterly growth and price forecasts.
• Market Stance: Despite the core CPI acceleration, most economists still expect the BOJ to keep the policy rate steady at 0.5% for the time being, pending clearer signs of broad-based wage-driven inflation.
Renewed Pressure on the Bank of Japan
The acceleration in Japan’s price growth comes as a strong signal that the country’s multi-decade battle against deflation has firmly given way to inflation, keeping the cost-of-living issue at the forefront of the new government’s agenda.
The key CPI data for September shows that the overall price environment remains inflationary, primarily driven by cost-push factors. The rise in core CPI was fuelled by a rebound in energy prices, which increased after the lapse of large government utility subsidies from the previous year.
Furthermore, while the surge in rice prices eased slightly, overall food costs (excluding fresh items) remained significantly high, contributing substantially to the persistent price pressures continuing in the Japanese economy.
However, a closer look at the data presents a mixed picture for the central bank. While the core CPI rate jumped, the core-core index—which the BOJ watches closely as a gauge of underlying domestic demand and service price growth—ticked down to 3.0%.
This slight moderation in the measure of underlying inflation, coupled with service-sector inflation rising at a slower pace compared to goods prices, provides the Bank of Japan with grounds for caution.
The Upcoming BOJ Policy Decision
The figures intensify the anticipation for the Bank of Japan’s next policy decision, scheduled for the conclusion of its Monetary Policy Meeting (MPM) next week.
Governor Kazuo Ueda has consistently stressed that for the BOJ to resume its policy normalisation cycle—which began last year with the exit from its radical stimulus programme—it must be convinced that inflation is sustained by a virtuous cycle of robust wage growth and strong domestic demand.
Currently, the consensus among analysts is that the BOJ will likely hold its short-term policy interest rate at 0.5%.
While the core inflation figure is strong, the slowdown in the core-core index and persistent uncertainties—such as the potential impact of global trade tensions on Japan’s export-led economy—are expected to justify a cautious, ‘wait-and-see’ approach.
The forthcoming release of the BOJ’s quarterly Outlook Report, alongside the rate decision, will be scrutinised for any revisions to its inflation and growth forecasts for the coming fiscal years.
Any upward revision to its inflation projections, especially for underlying price trends, would signal a growing conviction at the central bank that sustained 2% inflation is within reach and could significantly heighten market expectations for a rate hike early next year.
