Japan’s core consumer inflation continued its upward trend for the fourth consecutive month in August, surpassing the central bank’s 2% target comfortably, according to data released on Friday. This development has fueled anticipation for additional interest rate hikes.
The core consumer price index, excluding volatile fresh food costs, rose by 2.8% year-on-year in August, aligning with market predictions and following a 2.7% increase in July.
A separate index, excluding both fresh food and fuel costs – a key indicator monitored by the BOJ for demand-driven inflation – climbed by 2.0% in August from a year earlier, compared to a 1.9% rise in July.
Marcel Thieliant, the head of Asia-Pacific at Capital Economics, forecasted that underlying inflation would hover around 2% in the coming months, potentially prompting another rate hike by the Bank of Japan at its October meeting.
The BOJ, which terminated negative interest rates in March and raised short-term interest rates to 0.25% in July, citing an impending achievement of the 2% inflation target, is prepared to further increase rates if inflation remains at the target level with sustained wage growth.
Japan’s core consumer inflation has surpassed the BOJ’s 2% threshold for over two years, driven by elevated raw material import expenses, partly due to the depreciation of the yen, prompting businesses to raise prices.
In their July projections, the BOJ forecasted core consumer inflation to reach 2.5% by the end of March 2025 before moderating to 2.1% in fiscal 2025 and further to 1.9% in 2026.
