Core inflation in Japan's capital held steady in September and stayed well above the central bank's 2% target, data showed on Friday, as price pressures keep alive market expectations of a near-term interest rate hike.
The data will be among information the Bank of Japan will scrutinise at its policy meeting on October 29-30, when the board will produce fresh quarterly growth and price forecasts that will serve as key factors in its rate decision.
The Tokyo core consumer price index (CPI), which excludes volatile fresh food but includes fuel costs, rose 2.5% in September from a year earlier, slower than a median market forecast for a 2.8% gain.
The rise in Tokyo core CPI, seen as a leading indicator of nationwide trends, followed a 2.5% increase in August.
The slower-than-expected inflation in September was due largely to steps taken by the Tokyo metropolitan government to cushion the blow from rising living costs, such as cuts to childcare fees and water charges, the data showed.
An index that strips out both volatile fresh food and fuel costs, which is closely watched by the BOJ as a better gauge of underlying inflation, rose 2.5% in September after a 3.0% gain in August.
Food inflation, excluding the cost of fresh food items like vegetables, slowed to 6.9% in September from 7.4% in August.
"Excluding one-off factors, the broad trend is unchanged in that food inflation is slowing," said Koya Miyamae, senior economist at SMBC Nikko Securities.
"The BOJ must look not just at price moves but exports, corporate profits and the economic impact of U.S. tariffs, in deciding the rate-hike timing," said Miyamae, who expects the central bank to raise interest rates in December or January.
The BOJ ended a massive, decade-long stimulus programme last year and raised short-term interest rates to 0.5% in January, on the view that Japan was on the cusp of durably hitting its inflation target of 2%.
While nationwide core inflation has held above 2% for well over three years, BOJ Governor Kazuo Ueda has stressed the need to tread cautiously on further rate hikes to ensure price rises are driven by wage gains and robust domestic demand.
The BOJ kept interest rates steady last week. But in a sign of growing awareness within the board about mounting price pressure, two members dissented and proposed unsuccessfully to hike rates to 0.75%.
