Japan’s core consumer price index (CPI), which excludes fresh food but includes energy, rose 2.1% year-on-year in September 2026, accelerating from a 1.7% increase in August. This was the highest reading since December 2025 and was in line with market expectations. The pickup in inflation pushed price growth above the Bank of Japan’s 2% target for the first time in nine months, although government fuel subsidies continued to cushion the impact of higher oil prices stemming from the conflict in the Middle East.
At the same time, the core index that excludes both fresh food and fuel—closely monitored by the Bank of Japan as a more accurate measure of demand-driven inflation—climbed 2.4% year-on-year in September. That marked its first acceleration since October 2025 and the fastest pace in six months. In response to evolving price dynamics, the BoJ raised its policy rate by 25 basis points to 1.25% at its September meeting, lifting borrowing costs to their highest level since April 1995.
