- Tokyo core CPI rose 1.8% y/y in August, beating forecasts of 1.7% and nearing the BOJ's 2% target, with the closely watched core-core measure hitting 2.0%, adding to the case for a September rate hike.
The stronger than expected reading reinforces the case for a BOJ rate hike as soon as its September 17-18 meeting, with the core-core gauge the central bank watches most closely now sitting just 2 basis points shy of an even rounder milestone above target. Coming alongside a sharp acceleration in wholesale inflation to 7.2% in July, the data supports the view that Middle East related cost pressures are still working their way through the pricing chain with a lag, adding to the risk that consumer inflation continues drifting higher over coming months. With sources indicating the BOJ may consider a more aggressive hiking pace than its recent twice yearly cadence, this print adds another data point supporting near term policy tightening.
Tokyo's inflation data is closing in on the BOJ's target just as the central bank weighs whether to hike again as soon as next month.
- Tokyo headline CPI rose 1.9% y/y in August, matching the 1.9% forecast and down from 2% in July.
- Core CPI, which excludes fresh food, rose 1.8% y/y, beating the 1.7% forecast and up from 1.7% in July.
- The core-core index, which strips out fresh food and fuel and is the BOJ's preferred gauge of trend inflation, rose 2.0% y/y, up from 1.8% in July.
- The data is treated as a leading indicator for nationwide price trends and will factor into the BOJ's September 17-18 policy meeting.
- The BOJ raised rates to a 31-year high of 1% in June, held steady in July, but issued its strongest comments yet on mounting inflation risk.
- Wholesale inflation spiked to 7.2% y/y in July, pointing to further Middle East related cost pressure still to filter through to consumer prices.
- Reuters sources say the BOJ is set to hike as soon as September and may consider a faster pace of tightening than its recent roughly twice-yearly cadence.
Core consumer prices in Tokyo rose 1.8% in August from a year earlier, creeping closer to the Bank of Japan's 2% target and signalling broadening price pressure tied to the conflict in the Middle East, according to data released Friday. The reading beat median market forecasts for a 1.7% gain and followed a 1.7% increase in July, extending a recent run of firmer than expected inflation prints out of the capital.
An index that strips out both fresh food and fuel costs, a measure the Bank of Japan watches particularly closely as a gauge of underlying trend inflation, rose 2.0% in August, up from a 1.8% gain the previous month. Headline Tokyo CPI came in at 1.9%, matching forecasts and easing slightly from August's earlier hight watermark. Because Tokyo's data typically leads the nationwide inflation trend by several weeks, the release is closely watched as an early signal of where broader Japanese consumer prices are headed.
The acceleration comes at a pivotal moment for the central bank, which will scrutinise the data among other indicators ahead of its next policy meeting, scheduled for September 17 and 18. The BOJ raised its benchmark interest rate to a 31 year high of 1% in June, part of its ongoing normalisation of monetary policy after decades near zero. It held rates steady in July, but accompanied that decision with its strongest language yet on the risk of accelerating inflation, a signal that policymakers are increasingly alert to the possibility that price pressures could broaden further.
Adding weight to that concern, wholesale inflation spiked to 7.2% year on year in July, a sharp increase that analysts say reflects mounting cost pressure stemming from the conflict in the Middle East. Because wholesale price changes typically feed through to consumer prices with a lag, the jump suggests further upward pressure on headline and core inflation figures may still be working its way through the pipeline in the months ahead, even before accounting for any additional shocks.
According to sources cited by Reuters, the BOJ is now positioned to raise rates as soon as its September meeting, and policymakers are reportedly weighing whether to adopt a more aggressive tightening pace than the roughly twice yearly cadence the central bank has maintained through the current phase of policy normalisation. Should the BOJ move again in September, it would mark a continuation of a policy path that has already taken rates to their highest level in three decades, with today's inflation data offering fresh support for those within the central bank pushing for further and potentially faster action.
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