The Bank of Japan is expected to leave its policy rate unchanged at the current annualized rate of 1.25% in October. September consumer prices rose 2.1% year on year, exceeding the 2% target for the first time in 9 months.
At its monetary policy meeting in October, the Bank of Japan is expected to maintain its policy rate at the current annualized rate of 1.25%. Officials share the view that there will be no consecutive rate hikes unless a special emergency arises. The future course of monetary policy is expected to be determined after assessing domestic price trends and economic indicators.
According to Japanese government statistics, the September consumer price index rose 2.1% year on year on a core basis excluding fresh food. The increase in September was the first in 9 months since last December, driven by higher prices for food and daily necessities. The core index excluding fresh food and energy also rose 2.4%.
By category, food excluding fresh food rose 2.9%, while green tea recorded a 33.8% increase, the highest level since statistics began. The increase was attributed to stronger demand for green tea and lower production. The energy category, meanwhile, fell 0.6%. Government subsidies led to declines in gasoline and electricity prices.
The Bank of Japan has indicated that its Outlook Report could revise upward its forecast for core price inflation in the fiscal year ending March 2028 to around 2.4%. It cited developments in the Middle East, expanding AI demand and yen depreciation as factors posing upside risks to prices, and indicated that it would consider whether to raise rates flexibly. Markets are increasingly pricing in an additional rate hike from December onward following an unchanged decision in October.
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