By Leika Kihara and Takahiko Wada
TOKYO, Oct 2 (Reuters) – Annual core inflation in Japan’s capital accelerated in September at the fastest pace in 10 months, highlighting mounting price pressures that bolster the case for further interest rate hikes.
The data, considered a leading indicator of nationwide trends, will be among factors the Bank of Japan weighs when it issues fresh quarterly inflation forecasts at its next policy meeting on October 29-30.
The core consumer price index, which excludes fresh food but includes fuel costs, in Tokyo rose 2.7% in September from a year earlier, data showed on Friday, accelerating from a 1.8% gain in August and exceeding a median market forecast for a 2.4% gain.
It exceeded the BOJ’s 2% target for the first time since January and marked the fastest year-on-year pace since a 2.8% rise in November last year.
“Core inflation will continue to accelerate as a trend due to rising energy costs from the Middle East conflict and subsequent second-round effects,” said Masato Koike, senior economist at Sompo Institute Plus, adding that he expects the BOJ to raise interest rates in December.
An index stripping away the effect of fresh food and fuel, which is closely watched by the BOJ as a better gauge of trend inflation, rose 3.0% in September after a 2.0% gain in August to hit the fastest year-on-year rise since August 2025.
While the jump was partly due to the phasing out of water bill subsidies, households paid more for a broad range of goods and services including food, transportation and hotel bills.
Service-sector inflation hit 2.3% in September, accelerating from 1.4% the previous month, suggesting that firms were passing on rising labour costs from a tight job market.
The BOJ raised interest rates to a 31-year high last month, with its governor signalling the central bank has entered a new phase focused on preventing inflation from overshooting its target, opening the door to further rate hikes.
(Reporting by Leika Kihara and Takahiko Wada; Editing by Jacqueline Wong)
