Japan’s core inflation climbed to 2.1% in September as business activity expanded in October, while a Brown Brothers Harriman (BBH) estimate put odds of a Bank of Japan (BoJ) hike next week at 2%.
The Statistics Bureau of Japan reported Friday that the consumer price index (CPI) rose 2.1% year over year in September, up from 1.9% in August. CPI excluding fresh food also increased to 2.1% from 1.7%, while the measure excluding fresh food and energy reached 2.4% from 1.9%. The fresh-food-excluding measure was just above the BoJ’s 2% price-stability target. The central bank’s July outlook forecast that same measure at 2.5% year over year for fiscal 2026, a forecast period that differs from September’s monthly reading.
S&P Global’s October flash composite output index registered 52.3 for the second consecutive month. Services activity accelerated, while factory output grew at a slower pace and manufacturing growth reached its weakest level since March. S&P said AI-related demand and yen weakness helped support manufacturing, while energy-linked cost increases and difficulty passing higher prices on amid competition weighed on demand and business confidence.
Elias Haddad, a strategist at BBH, wrote in the firm’s Oct. 23 note that the inflation and activity readings add weight to the case for further BoJ rate increases. BBH’s reading of the swaps curve put the chance of a 25-basis-point increase to 1.50% on Friday, Oct. 30, at 2%; it estimated an 80% chance of a hike on Dec. 18. The figures are BBH’s estimates based on its reading of swaps.
The BoJ set its guideline for the uncollateralized overnight call rate at around 1.25% on Sept. 18, effective Sept. 24, in a 7-2 vote. Its next meeting is scheduled for Thursday and Friday, Oct. 29-30, with a policy statement due Friday, Oct. 30.
