Tokyo core inflation accelerates, nears BOJ target

Tokyo's core inflation surged in August for the third consecutive month, data revealed on Friday, indicating rising price pressures that suggest an interest rate increase may be imminent. This figure, considered an early indicator of nationwide trends, came after Bank of Japan Deputy Governor Ryozo Himino cautioned about growing inflationary risks, further fueling expectations of a rate increase in the near future.

In Tokyo, consumer prices excluding fresh food costs climbed 1.8 percent in August compared to a year ago, a level marginally higher than market expectations of a 1.7 percent increase and approaching the Bank of Japan's 2 percent target. The increase in the Tokyo core consumer price index, which omits volatile fresh food and fuel costs, reflected steady price hikes in food items.

Following a 1.7 percent rise in July, this was fueled by persistent price surges in food. The data will be among the factors the Bank of Japan will assess at its upcoming policy meeting scheduled for September 17-18, with many market participants anticipating a rate hike to 1.25 percent. Masato Koike, senior economist at Sompo Institute Plus, noted that the escalating Middle East conflict could further boost energy costs, potentially leading to broader price increases through second-round effects.

Himino had previously warned of mounting inflationary risks, urging the Bank of Japan to act promptly, despite not committing to a September hike, and emphasizing the importance of addressing the risk of an inflation overshoot.