Tokyo September CPI set to show core rate rising to 2.4%, strengthening case for BOJ hike

A Tokyo core inflation number at or exceeding 2.4% would bolster expectations for another BOJ rate increase, potentially lifting the yen and pushing up short-term Japanese government bond yields. A weaker result, however, would support the two board members who opposed the September hike. Since Tokyo data leads national figures by roughly three weeks, traders view it as an early signal for countrywide trends. For oil, the transmission goes through import costs: elevated crude prices linked to Middle East tensions have been a factor raising Japanese prices, so a further energy surge would heighten the BOJ's inflation worries. Labour market data is unlikely to affect markets unless it shows a major surprise, as a tight jobs market is already priced in.

The BOJ, two weeks after raising rates, is now waiting to see if Tokyo prices validate its decision, with forecasts suggesting core inflation will surge well above its target.

Summary:

• Tokyo core CPI (excluding fresh food) for September is projected at 2.4% year-over-year, compared with 1.8% in August; released at 2330 GMT
• Earlier readings: headline Tokyo CPI at 1.9%, core-core (excluding food and energy) at 2.0%
• The BOJ lifted its policy rate to 1.25% in a 7-2 vote on 18 September and signalled further rate increases if its forecast holds (more here on this also)
• Japan's August jobless rate is expected unchanged at 2.4%, with the job-to-applicant ratio at 1.18
• September monetary base numbers follow at 2350 GMT, after a 15.7% annual decline in August

Tokyo consumer price data for September, out on Friday, is forecast to reveal a sharp increase in core inflation, a development that would reinforce the argument for additional Bank of Japan tightening just two weeks after its most recent rate increase.

Core CPI for the Tokyo region, which strips out fresh food, is expected to climb 2.4% from a year ago, up from 1.8% in August. That would put the measure well above the central bank's 2% objective. Headline Tokyo CPI stood at 1.9% in August, while the core-core gauge—which excludes both food and energy and is closely monitored as a measure of underlying price pressures—was 2.0%. The data is due at 2330 GMT on Thursday, which is 8:30 a.m. Friday in Tokyo.

Tokyo figures come out about three weeks ahead of the national numbers and serve as a leading indicator for nationwide inflation, which for September is scheduled later this month.

The release comes after the BOJ raised its policy rate to 1.25% in a 7-2 vote on 18 September, with two board members dissenting on the basis that inflation was still below 2%. According to the bank's policy statement, it judged underlying inflation to be approaching its target, highlighted upside risks from shifting wage and pricing patterns and rising inflation expectations, and indicated it would keep raising rates if its outlook materializes. A robust Tokyo reading would reinforce the majority stance and undercut the dissenters' claim that price growth had not quickened enough.

Price pressures have been mounting because of higher import costs stemming from Middle East tensions and a weaker yen, partly offset by government fuel subsidies and other support measures.

Japan's August labour market figures are due at the same time. The unemployment rate is forecast to remain at 2.4%, with the job-to-applicant ratio expected unchanged at 1.18, meaning about 118 openings for every 100 job seekers. September monetary base data follows at 2350 GMT, after a 15.7% annual contraction in August that reflects the BOJ's ongoing balance-sheet reduction.

The Tokyo core reading is the main event, with the gap between the projected 2.4% and the BOJ's 2% target likely to influence how swiftly markets price in the next move.

---

ps. New Zealand's ANZ-Roy Morgan consumer confidence index for September was released, coming in at 97.6, down from a reading of 98 in August, still below the 100 threshold that separates optimism from pessimism.