Japan's Ministry of Internal Affairs and Communications revealed on October 2 that the core consumer price index, or core CPI, for Tokyo, which excludes fresh food prices, rose 2.7% in September year on year, higher than the 2.3% analysts had expected and up from 1.8% in August. It was the first time since January this year that Tokyo's core CPI stood above the Bank of Japan's 2% inflation target. Meanwhile, the effects of some temporary government subsidy measures have begun to fade. The core CPI that excludes both energy and fresh food prices, a key underlying inflation gauge, jumped 3% in September, accelerating from 2% in August. The data may heighten the Bank of Japan's concern over the risk that inflation will remain on an upward trend and could exceed its 2% target, which would prompt the central bank to consider the appropriate timing for another interest rate hike, after it had just raised rates by 0.25% to 1.25%, the highest level in 31 years, at its meeting on September 18. The Bank of Japan's policy board said in a statement that the increase was driven by the risk that inflation could surge above the 2% target, and that the central bank aims to keep underlying inflation stable at around 2%, while signalling that it will continue to raise its policy interest rate and adjust the degree of monetary easing in line with changes in economic activity, prices and financial conditions.
Tokyo core CPI jumped to 2.7%, reinforcing BOJ's case for another rate hike, which pushes JGB yields up and bond prices down.
Hotter Tokyo inflation supports further BOJ rate hikes, strengthening the yen versus the dollar.
