I’ve bolded a section below that I think could be key to BOJ hold at its next meeting, October 29 and 30.
Japan’s core consumer inflation accelerated in September, keeping pressure on the Bank of Japan (BOJ) ahead of its policy meeting next week, though a closer look at the data revealed a slowdown in the underlying trend.
Core consumer prices, which exclude fresh food but include fuel, rose 2.9% year-on-year, government data showed on Friday. This matched market forecasts and was an acceleration from the 2.7% rise in August, keeping inflation well above the central bank’s 2% target.
However, the BOJ’s preferred “core-core” index, which strips out both food and volatile energy costs, provided a different picture. This gauge, seen as a better measure of underlying demand, rose 3.0%, marking a slowdown from the 3.3% increase in August.
The headline acceleration was driven by a renewed rise in energy costs and stubbornly high food prices, which climbed 7.6%.
A key sign of weakness for the BOJ was the persistent lag in service-sector inflation, which rose just 1.4%. This slow pace, far behind the 4.2% jump in goods prices, indicates that firms are only gradually passing on higher labour costs—a crucial prerequisite for the BOJ to resume its rate-hike cycle.
Analysts noted this mixed report gives the BOJ cover to remain cautious. “As things stand, both inflation… are on track to meet or overshoot the BOJ’s forecast for the ongoing fiscal year,” said Abhijit Surya, senior economist at Capital Economics. “Even so, the Bank’s messaging has remained cautious… and it doesn’t suggest that a rate hike is imminent.” Surya projects the BOJ will wait until January before hiking rates from their current 0.5% level.
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This mixed report will likely reinforce the Bank of Japan’s cautious, “wait-and-see” stance, which should put downward pressure on the Japanese Yen (JPY). While the 2.9% headline figure keeps rate-hike expectations on the table, traders will likely focus on the slowdown in the “core-core” index and weak service inflation. This reduces the immediate pressure on the BOJ to hike, which in turn should support Japanese government bonds (JGBs) and provide a tailwind for the Nikkei, as a weaker yen benefits exporters.
This article was written by Eamonn Sheridan at investinglive.com.