Tokyo – Japan’s core consumer inflation held steady near the Bank of Japan’s (BOJ) 2% target in August, according to data released on Friday. The core CPI, which excludes volatile fresh food but includes fuel costs, rose 1.7% from a year earlier, just shy of the median market forecast of 1.8%.

The figure follows a 1.8% rise in July and comes hours before the BOJ concludes its two‑day policy meeting. Market participants widely expect the central bank to raise its policy rate to a 31‑year high of 1.25%.

Underlying price pressures

While core inflation has remained below the 2% target for eight consecutive months, rising fuel costs linked to the Middle‑East conflict and higher import prices driven by a weak yen have added pressure. Government subsidies aimed at curbing utility bills have helped offset broader price hikes, but the BOJ has warned of a possible inflation overshoot.

BOJ’s recent moves

In June, the BOJ lifted rates to 1% as it believed Japan was on the cusp of sustainably reaching its inflation goal. It kept rates steady in July but signaled a strong chance of a near‑term hike given mounting price pressures. Sources familiar with the central bank told Reuters that the BOJ is set to raise rates this week and may signal faster future tightening if inflation risks intensify.

Market expectations

Analysts surveyed by Reuters anticipate a 1.25% rate increase on Friday, with a further rise to 1.5% by the end of March 2027 and a move to 1.75% in the second quarter of 2027.

These developments underscore the delicate balance the BOJ faces: supporting economic growth while ensuring inflation does not exceed its target, a challenge that will shape Japan’s monetary policy in the months ahead.

Original reporting: Appleton, WI News Feed (HLL/CB) — read the source article.