Japan’s core consumer prices climb 2.1% in September, topping BoJ goal

The figure lined up with analysts’ median estimate, according to government statistics released Friday. A stricter measure that leaves out both perishable food items and energy costs – a gauge the central bank monitors closely to gauge underlying demand pressures – climbed 2.4% annually, accelerating from 1.9% the month before.

Authorities cited several overlapping drivers behind the uptick: costlier energy stemming from the drawn-out hostilities in the Middle East, pricier imports caused by a soft yen, and robust appetite for artificial-intelligence-related goods. Those forces have outweighed the cushioning effect of state-backed fuel subsidies designed to protect households from rising living costs.

Last month the Bank of Japan lifted its key rate to 1.25%, the highest level seen in 31 years, while flagging heightened vigilance toward the risk that inflation could run hotter than expected. Governor Kazuo Ueda has suggested that core price growth may keep exceeding the bank’s 2% benchmark as yen depreciation and AI-fueled demand continue to build.

Even with September’s acceleration, policymakers are widely expected to hold borrowing costs steady at next week’s gathering. Insiders indicate the bank could nonetheless lift its inflation projections and keep the door open to future tightening.

Why it matters for markets: With Japan core inflation running past the central bank’s goal, traders continue to price in additional rate hikes – a dynamic that typically bolsters the yen versus the dollar and other currencies while pressuring Japanese government bond (JGB) prices as yields climb. Rising Japanese rates could also ripple through global risk sentiment via unwinding yen-funded carry positions, with potential spillover effects for equity benchmarks like the Nikkei 225.

Source: Economic Times Markets