Japan’s Core Inflation Falls to 13-Month Low as Market Eyes Rate Hikes

Japan’s September key inflation indicator, the core inflation, was published at 2.8% YoY which is slightly higher than the forecast of 2.7% and under 3% for the first time in 2023. Still, it’s higher than the general target of 2% as the market speculated that the Bank of Japan (BoJ) would try to end its ultra-loosen monetary policy or the negative interest rate soon.

Core consumer price index (CPI) that excluded the volatile foods price from its calculation, slowed down from 3.1% in August to a 13-month low. Meanwhile, the core-core consumer price index, which excludes food and energy prices, that BoJ monitored closely, rose by 4.2% YoY but slightly slowed down from 4.3% in the previous month of August.


However, the recent volatile crude oil price and the weakening of Japanese yen are still pressuring Japan’s economy as the countries rely on import goods, especially gas and foods. Japanese consumers got hit in the process by the falling of the real wages after adjusting for inflation. This reflected on lesser items bought at supermarkets as some BoJ branch managers mentioned.

Despite pressure from inflation, BoJ had been keeping its zero-interest rates intact, while also setting a 0% cap on its 10-year bond yield. The central bank noted that it will need the current cost-driven inflation to turn into demand-driven rises in inflation for it to consider raising interest rates.


It remains to be seen whether the real wage increase that has never happened in three decades could offset the inflationary price.

Japan’s central bank will meet on October 30 for a two-day meeting.