Japan Central Bank inflation indicators accelerate, providing grounds for further interest rate hikes

Golden Ten Data APP reports that the Bank of Japan's indicator measuring underlying inflation accelerated last month, far exceeding its target level, providing grounds for further raising the benchmark interest rate. A report released by the Bank of Japan on Friday shows that consumer prices (CPI) excluding fresh food and special factors rose 2.6% year-on-year in August, accelerating from 2.3% in July. Special factors include government subsidies for gasoline and utilities. The indicator excluding fresh food, energy, and special factors increased from 1.6% in July to 1.8%.

Previously, the Bank of Japan decided last week to accelerate the pace of rate hikes, emphasizing the risk that inflation could surpass the 2% target. Japanese government data show that Japan's inflation rate is below the central bank's target, mainly due to government measures to curb living costs. The inflation indicator released by the Bank of Japan on Friday, which excludes the impact of such factors, provides a basis for its stance on further rate increases.

After two committee members voted against a rate hike last week, the assessment of inflation strength has become particularly important. Asada Uniro and Ayano Sato, appointed by Japanese Prime Minister Sanae Takaichi, opposed the rate hike, weakening external expectations of a hawkish stance by the Bank of Japan and causing the yen to depreciate. Their opposition was based on inflation concerns.

Overnight index swap pricing shows that investors believe the probability of the Bank of Japan raising rates again before December exceeds 90%. A survey of economists conducted before the September meeting found that 58% of respondents believe January next year is the right time for another rate hike, while about 35% think the next rate hike will be in December.

The Bank of Japan will announce its next interest rate decision on October 30.