Japan's annual core consumer inflation rose 2.1% in September from a year earlier, exceeding the Bank of Japan's 2% target for the first time in nine months, government data showed on Friday, Reuters reported from Tokyo. The rise matched a median market forecast and followed a 1.7% rise in August.

Source: Reuters

An index stripping out both fresh food and fuel — closely watched by the BOJ as a better gauge of demand-driven price pressure — rose 2.4% in September, up from 1.9% in August. Reuters said higher fuel costs from the prolonged Middle East conflict, elevated import prices driven by the weak yen and price pressure from robust AI demand were blunting the impact of government fuel subsidies.

The BOJ raised its key rate to a 31-year high of 1.25% last month. Having just raised rates, the central bank is set to stand pat next week but may revise up its inflation forecast and signal readiness to keep raising borrowing costs, sources told Reuters — a sources-based expectation, not a BOJ announcement. Governor Kazuo Ueda has warned that underlying inflation may overshoot the 2% target on price pressure from the Middle East conflict, a weak yen and brisk AI demand.

Same morning: factories cool to a seven-month low

A separate flash survey the same morning pointed the other way on growth. The S&P Global flash Japan manufacturing PMI fell to 53.3 in October from 54.1 in September, with manufacturing output at 53.1 — a seven-month low — Reuters reported. Services activity rose to 52.0 from 51.3, leaving the composite PMI unchanged at 52.3, the 19th straight month of expansion, according to S&P Global data summarised by InvestingLive.

Source: InvestingLive (S&P Global flash PMI)

New orders grew at the slowest pace in three months and hiring slowed to a 14-month low, while input cost inflation edged higher on raw material and labour costs, InvestingLive said, adding that sustained high oil prices linked to the Middle East conflict are likely to keep input cost inflation elevated into year-end. Together, the two releases leave the BOJ balancing broadening price pressure against cooling factory momentum.

2.1%Japan core CPI in September, first above the BOJ's 2% target in nine months
2.4%core-core inflation (excluding fresh food and fuel) in September
1.25%BOJ key rate after last month's rise — a 31-year high
53.3flash manufacturing PMI in October, down from 54.1

What is solid

  • Core CPI rose 2.1% in September and the core-core index rose 2.4%, according to official data reported by Reuters.
  • The flash manufacturing PMI fell to 53.3 and output hit a seven-month low, while the composite PMI held at 52.3 (S&P Global).

What is only claimed

  • That the BOJ will hold next week, revise up its inflation forecast and signal further hikes — this rests on unnamed sources told to Reuters, not a BOJ statement.