Japan’s inflation accelerated in September, rising above the Bank of Japan’s (BoJ) 2 per cent target and strengthening expectations of a further interest rate increase, according to official data released on Friday.
The rise was driven mainly by higher processed food prices amid soaring global energy costs linked to conflicts in the Middle East, reports AFP.
According to data published by the Ministry of Internal Affairs, consumer prices excluding volatile fresh food rose 2.1 per cent year-on-year in September, up from 1.7 per cent in August. The figure matched market forecasts but exceeded the central bank’s 2% target, increasing the likelihood of further monetary tightening.
Core-core inflation, which excludes both food and energy, reached 2.4 per cent in September, exceeding market expectations after standing at 1.9 per cent in August.
Rising residential rents and automobile-related expenses also contributed to higher living costs, alongside processed food and energy prices. Abhijit Surya, an analyst at Capital Economics, noted that rent inflation had reached its highest rate in nearly 25 years.
Meanwhile, the weakening yen continued to push up the cost of imported goods. Government subsidies for electricity and petrol helped cushion the impact of rising energy costs.
Surya said the latest figures strengthened the case for further action by the central bank.
“With underlying inflation back above the Bank of Japan’s 2 percent target, the case for further tightening remains on solid ground,” he said.
He added that media reports suggested the BoJ could raise its inflation forecasts at its upcoming October meeting, potentially paving the way for another interest rate increase in December.
The BoJ had previously raised interest rates in mid-September, joining other major global central banks in tackling inflationary pressures driven by surging energy prices linked to the war in Iran.
The inflationary pressures also pose significant political and fiscal challenges for the government led by Prime Minister Sanae Takaichi. Her two predecessors were brought down by public anger over spiralling living costs.
To protect household purchasing power, the government introduced a massive stimulus package at the end of 2025, alongside extensive energy tax relief. Authorities have also announced plans to reduce the consumption tax on food from 8 per cent to 1 per cent for two years, beginning in April.
However, media reports suggest the tax reduction could cost the government 10 trillion yen ($63 billion) in lost revenue.
The expected shortfall has raised concerns about Japan’s fiscal health, as its public debt already exceeds twice its annual economic output, placing the country among those with the highest debt-to-GDP ratios globally.
The economic pressure is further compounded by Japan’s heavy reliance on crude oil imports to meet its energy needs, as the country has limited natural resources.
