Tokyo core inflation spikes in September, strengthening case for further BOJ hikes

Data released on Friday revealed that Tokyo's core consumer price index climbed 2.7% in September compared with the same month last year, accelerating sharply from the 1.8% rise recorded in August and surpassing market expectations of 2.4%. An alternative measure that excludes both fresh food and fuel posted an even larger gain of 3.0% for the month. The surge reflects mounting price pressures from a recent spike in wholesale inflation, which analysts attribute to the ongoing Middle East conflict, a depreciating yen and robust demand for AI-related products, even as government fuel subsidies have kept overall inflation below the Bank of Japan's target.

The BOJ, which raised its policy rate to a 31-year high in the previous month, indicated that it has entered a new phase aimed at preventing inflation from exceeding its goal, suggesting further rate hikes may be forthcoming. These figures will feed into the BOJ's upcoming quarterly inflation forecasts due at its policy meeting at the end of October. The trend underscores the growing challenge for Japanese policymakers to balance growth and price stability amid external shocks.