Brown Brothers Harriman (BBH) expects Japan’s annual inflation rate to rise in September, but says swap markets put little weight on an October Bank of Japan (BOJ) rate hike.
The firm’s Oct. 18 note forecasts a 2.1% year-over-year rise in consumer prices overall, compared with 1.9% in August. It projects a 2.1% increase excluding fresh food and a 2.3% increase excluding both fresh food and energy.
The Statistics Bureau of Japan put those two August measures at 1.7% and 1.9%, respectively. The September figures are forecasts; the bureau is scheduled to publish the national consumer price index on Oct. 23.
BBH’s note said interest rate swaps implied less than a 5% chance of a quarter-point increase to 1.50% at the BOJ’s Oct. 30 meeting. The same assessment put the probability of an increase at the Dec. 18 meeting at 80%.
Those figures describe BBH’s reading of market pricing, not a decision by the central bank. The BOJ voted 7-2 on Sept. 18 to set its overnight call-rate target at about 1.25%, effective Sept. 24.
The bank’s July outlook projects 2.5% inflation for fiscal 2026 on both measures excluding fresh food, with and without energy. BBH’s September estimates and the bank’s fiscal-year projections describe different periods.
The BOJ has cited higher oil and semiconductor prices and yen depreciation as possible inflation pressures. It says government energy measures are intended to reduce the burden on households.
A separate BOJ survey of price perceptions found that 95.5% of respondents believed prices had risen over the year to September. The survey records people’s perceptions, rather than changes in the official price index.
The BOJ says it will weigh economic activity, prices and financial conditions when deciding the timing of future increases. Its next policy meeting is scheduled for Oct. 29-30, with an updated outlook due Oct. 30.
