Inflation accelerates again! Japan's core CPI rose by 2.8% year-on-year in August, with the market eagerly awaiting the interest rate decision

On Friday, September 20th, the Japanese Statistics Bureau released the August Consumer Price Index (CPI), showing that inflation has accelerated for the fourth consecutive month, far exceeding the Bank of Japan's target of 2% inflation.

The latest data indicates that Japan's August CPI rose by 3% year-on-year, higher than the previous value of 2.8%. The core CPI, excluding fresh food, increased by 2.8% compared to the previous year, accelerating from July's 2.7% inflation.

Overall, the three indicators released in August in Japan met expectations but all showed an increase from the previous month. The market still holds expectations for the Bank of Japan to further raise interest rates. Previously, Bank of Japan Governor Haruhiko Kuroda emphasized, "If the inflation rate continues to steadily reach its 2% target (as currently predicted by the Bank's committee), the Bank of Japan is prepared to further raise interest rates."

Specifically:

Japan's August CPI rose by 3% year-on-year, with an expected value of 3% and a previous value of 2.8%.

Japan's core CPI, excluding fresh food, rose by 2.8% year-on-year in August, with an expected value of 2.8% and a previous value of 2.7%. It has now been maintained at or above the 2% target level for 29 consecutive months.

Due to the larger decrease in resource prices last year compared to this year, the increase in electricity and city gas fees widened in August, while gasoline and kerosene were negative, keeping the overall energy increase unchanged.

Japan's CPI, excluding fresh food and energy, rose by 2% year-on-year in August, with an expected value of 2% and a previous value of 1.9%.

It is expected that there will be no change today, with the possibility of a rate hike later this year

Currently, the market generally expects the Bank of Japan to keep the benchmark interest rate unchanged at 0.25% in the monetary policy meeting on Friday. Previously, the Bank of Japan raised the benchmark interest rate to 0.25% at the end of July.

Morgan Stanley expects the Bank of Japan to maintain its current monetary policy. The bank believes:

"The Bank of Japan is still in the stage of evaluating the impact of the unexpected rate hike in July, especially considering the lag effect of price transmission and the upcoming political elections, so it is not in a hurry to raise rates again." Bank of America Merrill Lynch also holds the same view, stating that the strengthening of the yen and the increasing economic and political uncertainties have reduced the urgency for a rate hike in the short term.

However, as inflation has accelerated for the fourth consecutive month, the market still expects the central bank to further raise interest rates. More than half of the Bank of Japan observers believe that Japanese authorities will raise interest rates again in December.

But given the unpredictable nature of the financial markets, Goldman Sachs believes that there is still uncertainty about the timing of the Bank of Japan's next rate hike:

"The timing of the next rate hike by the Bank of Japan remains highly uncertain. If the financial markets experience a significant decline due to concerns about a U.S. economic downturn and other factors, economic activity and price inflation in Japan may be lower than expected, and the rate hike may be postponed.

If economic, wage, and price data continue to show strength, and the financial markets remain relatively stable, a rate hike in December (this year) is possible."

Bank of America Merrill Lynch, on the other hand, predicts that the Bank of Japan may raise interest rates again to 0.5% in January 2025, and further increase it to 0.75% in the second half of next year