Japan's Inflation Accelerates for Fourth Month as BOJ Meets

Japan’s key inflation gauge accelerated in August for a fourth consecutive month, hours before the Bank of Japan is scheduled to wrap up its latest policy decision meeting.

(Bloomberg) — Japan’s key inflation gauge accelerated in August for a fourth consecutive month, hours before the Bank of Japan is scheduled to wrap up its latest policy decision meeting. 

Consumer prices excluding fresh food rose 2.8% from a year earlier, speeding up from 2.7% in July as processed food costs increased further, according to the Ministry of Internal Affairs Friday. The result matched the consensus estimate. 

The Bank of Japan is widely expected to leave the benchmark rate at 0.25% when its two-day meeting ends later Friday. Economists will be watching how Governor Kazuo Ueda will communicate the prospects for further interest rate hikes in the coming months. Over half of BOJ watchers see authorities conducting their next rate hike in December. 

The central bank has signaled it plans to raise the rate further if inflation develops in line with its forecasts, saying real rates remain considerably negative. The bank’s main inflation gauge, consumer prices excluding fresh food, has now stayed at or above the bank’s 2% target for 29 months.

What Bloomberg Economics Says…

“The data — due Sept. 20 before the BOJ’s policy decision — are sure to spur board discussion on the rate-hike path. In our baseline scenario, the BOJ will lift its rate target to 0.50% in October from 0.25% now.”

— Taro Kimura, economist 

For the full report, click here. 

A deeper index excluding energy costs and fresh food prices rose 2%, accelerating from 1.9% in July. Service prices, seen by the BOJ as a key measure to examine the price trend, gained 1.4% from a year earlier, unchanged from the pace in July. 

The BOJ’s communication is under scrutiny as a market crash after its July hike prompted BOJ officials to expand on its policy stance, with Deputy Governor Shinichi Uchida in particular saying the bank won’t raise the rate when markets are unstable. 

The bank’s policy making is also at a delicate point in time after the Federal Reserve conducted an outsize interest-rate cut, which initially pushed the yen higher versus the dollar. Any more hawkish signals from the BOJ could strengthen the yen further, which in turn could weigh on Japanese exporters’ share prices.

(Updates with more details.)