Japan's core CPI again exceeded 2% after rising 2.1% year on year, increasing the likelihood that the Bank of Japan will move closer to another rate hike. The government remains cautious about the prospect of declaring an end to deflation, leaving the outlook for future decisions uncertain.
Japan's core CPI rose 2.1% year on year in September, again exceeding 2% in September. Some observers have pointed to signs of sustained upward price pressure, beyond the impact of energy prices.
In response to this development, the Bank of Japan has increased the likelihood that rate hikes will continue, and the possibility that the policy rate of 1.25%, raised in September, will remain in place for an extended period is being considered. Market views also remain cautious about a rate hike in the near term.
The government continues to take a cautious stance toward declaring an end to deflation, and it has been suggested that the conditions for officially declaring the end of deflation have not been met. The finance and economic authorities are said to need to assess the price outlook from a broad perspective.
At the Bank of Japan's policy meeting at the end of October, attention focused not only on whether to leave interest rates unchanged, but also on its assessment of the sustainability of inflation and its decision on the need for another rate hike.