Japan core inflation hits 2.1% in September, highest this year

Japan’s core inflation rose to 2.1% in September, the highest level this year, overshooting analysts’ expectations. The increase was pressured by steeper import costs from a weak yen and the indirect impact of higher energy costs.

Headline inflation also came in at 2.1%. Core-core inflation, which excludes fresh food and energy and is the Bank of Japan’s preferred gauge, was 2.4%. Core inflation, which strips out fresh food, matched Reuters-polled economists’ estimates and accelerated from 1.7% in the prior month.

What drove the increase

The rise appeared to be driven by price increases in durable goods and public utilities charges. Rice prices declined 20.6% year on year. Abhijit Surya, senior APAC economist at Capital Economics, said the sharp drop could not prevent overall goods inflation from picking up to 2.8%, up from August’s 2.6%.

“That acceleration was noteworthy, not least because it occurred despite a sharp slowdown in fresh food inflation and continued energy deflation,” Surya said. “One reason may be that the indirect effects of the energy shock are continuing to feed through, with inflation in ‘other industrial products’ rising to a 13-month high of 3.9%,” he added.

Consumer energy prices fell 0.6% in September. They have mostly declined so far this year despite the Iran war, due to subsidies handed out by the Takaichi administration.

Tax debate and BOJ pressure

Japan’s Lower House began debating a bill on Tuesday to cut the consumption tax on food to 1% from 8% for two years, in an effort to contain price rises. Data on Friday is expected to show consumer price growth has stayed above the central bank’s 2% target for four straight calendar years. Soaring food costs are a key component driving broader inflation higher.

Higher inflation could push the Bank of Japan toward another rate hike this year. Japan’s benchmark declined 1.62% on Friday, while the yen strengthened to 156.15 against the dollar.

Market context

A supermarket employee at Celsior Wadamachi in Yokohama, Japan, was pictured on Thursday, Jan. 15, 2026. Photo credit: Bloomberg | Bloomberg | Getty Images.