Japan's trend inflation index hits 3-year high, cements case for BOJ rate hike

What happened

Japan's core consumer price index, which strips out one-off factors, rose 3.2% in September from a year earlier, the fastest annual pace in three years, up from 2.6% in August, Bank of Japan data showed.

Confirmed

Global impact / market context

Faster underlying inflation strengthens the case for the Bank of Japan to keep raising borrowing costs, which means loans get more expensive for companies and households, potentially cooling capital spending and pressuring stock valuations.

Analyst inference

The Bank of Japan is expected to hold rates at 1.25% on Friday but signal readiness to keep raising them, so investors will weigh steady policy now against a likely path of higher rates later.

Analyst inference

What to watch

1. The Bank of Japan's two-day policy meeting ends on Friday, when the central bank is set to keep interest rates steady at 1.25%. Confirmed
2. Watch whether the Bank of Japan signals its readiness to keep raising borrowing costs, which would shape expectations for future rate hikes. Proposed
3. Service-sector inflation rose 3.7%, suggesting companies are passing labour costs into prices; watch whether this keeps underlying inflation elevated. Analyst inference

Evidence

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