Japan's core consumer inflation rose for the fourth straight month in August, exceeding the Bank of Japan's (BOJ) 2% target and raising expectations of further interest rate hikes. The core consumer price index (CPI), which excludes fresh food costs, increased 2.8% from a year earlier, following a 2.7% rise in July.
This data comes just ahead of the BOJ's policy meeting conclusion, where the central bank is widely expected to keep interest rates steady at 0.25%. A separate index that strips away both fresh food and fuel costs, seen as a more precise measure of demand-driven inflation by the BOJ, rose 2.0% in August, up from 1.9% in July.
Economists like Marcel Thieliant, head of Asia-Pacific at Capital Economics, suggest that underlying inflation will likely remain around 2% over the coming months, potentially prompting another rate hike by the BOJ at its October meeting.
The BOJ ended negative interest rates in March and raised short-term rates to 0.25% in July as inflation continued to stay above its target. BOJ Governor Kazuo Ueda has emphasized the bank’s willingness to raise rates further if inflation is sustained and supported by solid wage growth.
The BOJ's projections made in July estimate core inflation at 2.5% for the fiscal year ending March 2025, followed by a slowdown to 2.1% in fiscal 2025 and 1.9% in 2026.
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