Tokyo Inflation Remains Above BOJ's 2% Target, Signaling Potential for Further Interest Rate Hikes

Key summary

Data released by the Japanese government on October 30 revealed that Tokyo's core inflation rate in October was significantly above the Bank of Japan's (BOJ) 2% target, reinforcing inflationary pressures and increasing the likelihood of further interest rate hikes by the BOJ. This report was released ahead of the BOJ's policy meeting today, where the market anticipates that the BOJ will maintain interest rates but reaffirm its commitment to raising rates to control inflation. Tokyo's core consumer price index (Core CPI), which excludes fresh food but includes energy, rose by 2.6% year-on-year in October, compared to 2.7% in September. The Core-core CPI, which the BOJ closely monitors, increased by 2.6% in October, down from 2.9% in September. This data supports the BOJ's view that higher producer prices will be passed on to consumers, leading to faster inflation. At its September meeting, the BOJ raised its policy interest rate to 1.25%, the highest level in 31 years. Kazuo Ueda, the Governor of the BOJ, signaled that the central bank is entering a new phase to prevent core inflation from accelerating beyond its target, indicating a potential for further interest rate hikes in the future.