Tokyo core inflation rate jumps in September, bolsters case for more BOJ hikes

In Tokyo, the core inflation rate surged in September, marking the quickest annual pace in 10 months and bolstering arguments for additional interest rate hikes. This data, often seen as a precursor for nationwide trends, will be one of the elements the Bank of Japan considers when publishing quarterly inflation forecasts in its upcoming policy meeting on October 29-30.

The core consumer price index in Tokyo climbed 2.7% in September compared to a year ago, a substantial jump from the 1.8% increase in August and surpassing market predictions for a 2.4% rise. This marked the first time the index exceeded the Bank of Japan's 2% target since January and represented the swiftest year-on-year increase since November of the previous year.

Senior economist Masato Koike of Sompo Institute Plus posited that core inflation will likely keep accelerating due to mounting energy costs stemming from the Middle East conflict and the ensuing secondary effects. He anticipates the central bank to raise interest rates in December.

The index that excludes the impact of fresh food and fuel, which the Bank of Japan closely monitors as a more reliable gauge of inflation trends, climbed 3.0% in September, up from 2.0% in August, marking the fastest year-on-year surge since August 2025. This increase was partly attributed to the discontinuation of water bill subsidies, as households faced higher prices for a wide array of goods and services, including food, transportation, and hotel bills.

Service-sector inflation in September rose to 2.3%, up from 1.4% the previous month, indicating that businesses were absorbing the rising labor costs due to a tight job market. The Bank of Japan increased interest rates to a 31-year peak the previous month and signaled that the central bank had entered a new phase aimed at preventing inflation from exceeding its target, thereby paving the way for more rate hikes.