| Consensus | Consensus Range | Actual | Previous | |
| CPI - Y/Y | 2.1% | 2.1% to 2.3% | 2.1% | 1.9% |
| Ex-Fresh Food - Y/Y | 2.1% | 2.0% to 2.3% | 2.1% | 1.7% |
| Ex-Fresh Food & Energy - Y/Y | 2.3% | 2.2% to 2.5% | 2.4% | 1.9% |
Highlights
Japan’s consumer inflation accelerated to just above the Bank of Japan’s 2% price stability target in September as the price-cutting impact of two key fiscal support programs by the Tokyo metropolitan government had waned. The lingering war in the Middle East is keeping fuel and transportation costs high while the yen remains under year-earlier levels, eroding the economy’s purchasing power. Hotel charges rose on the year after falling in August thanks to strong tourism demand during the longer-than-usual Silver Week holidays from Sept. 19 until Sept. 23.
The year-on-year increase in the core CPI (excluding fresh food) picked up to a nine-month high of 2.1% after unexpectedly easing to 1.7% in August and rising to a six-month high of 1.8% in July. It remains tame compared to a recent peak of 3.7% hit in May 2025.
The annual rate of the total CPI also rose to a nine-month high of 2.1% after being steady at 1.9% in August and firming to a seven-month high of 1.9% in July. Overall inflation has come down gradually from 4.0% at the start of 2025. Underlying inflation, as measured by the core-core CPI that exclude fresh food and energy, climbed to a six-month high of 2.4% after being unchanged at 1.9% the previous month. It is well below the recent peak of 3.4% reached in June 2025.
Tokyo’s water subsidies for the peak summer months ended for some households (others on a different charging cycle will also see the end of the program soon) and the base-year effect of free daycare services in the capital that began about a year ago has been reduced.
The pullback impact of those programs was less steep on the national level while it caused a jump in the Tokyo CPI data that is measured in the middle of the month and released ahead of the national average figures. Free base water bills and completely free daycare charges are limited to Tokyo, the only one among the 47 prefectures (some municipalities provide some support for daycare costs).
Nationwide subsidies for fuels and utilities (electricity and natural gas) are keeping energy prices below year-earlier levels, providing a slight downward pressure on overall prices. But households are expected to be hit by further markups in groceries and other necessities in coming months. High energy, import and labor costs are forcing firms in many sectors to raise prices.
At its Sept. 17-18 meeting, the Bank of Japan’s nine-member board decided to raise the target for the overnight interest rate to 1.25% from 1% in a 7 to 2 vote, warning that elevated energy prices caused by the Iran war could spread to a wide range of goods and services and push up underlying inflation above the bank’s 2% inflation target. The bank’s sixth rate hike in the current cycle was widely expected and follows no change in July and a 25-basis point (0.25 percentage point) rise in June.
The board repeated that it will “continue to raise the policy interest rate and adjust the degree of monetary accommodation.” The timing and pace of future rate hikes, it said, depend on how its medium-term economic outlook is affected by three main risk factors: the impact of the Mideast conflict, strong global demand to develop artificial intelligence and fluctuations in foreign exchange rates.
Details:
Japan Sept core CPI (excluding fresh food) +2.1% y/y, 61st straight rise (Aug +1.7%); median forecast +2.1%
Japan Sept total CPI +2.1% y/y, 61st straight rise (Aug +1.9%); median forecast +2.1%
Japan Sept core-core CPI (ex-fresh food, energy) +2.4% y/y, 54th straight rise (Aug +1.9%); median forecast +2.3%
Japan Sept inflation picks up as Tokyo’s summer free base water charge program ends for some users, base year effect of free day care services wanes
Japan Sept CPI: processed food +2.9% (+0.69 point contribution) vs. +2.7% (+0.64 pt) in Aug
Japan Sept CPI: energy prices -0.6% y/y (-0.04 point contribution) vs. -0.7% (-0.05 pt) in Aug
Japan Sept CPI: hotel fees +4.6% (+0.05 point contribution), up sharply from -1.4% (-0.02 point) in Aug due to longer-than-usual Silver Week holidays
Japan Sept CPI services (ex-owners’ equivalent rent) +2.0% vs. +1.5% in Aug; goods (ex-fresh food) +2.8% vs. +2.4% in Aug
Market Consensus Before Announcement
The three key measures of Japan’s nationwide consumer price index are expected to rise above the Bank of Japan’s 2 percent inflation target in September for the first time in six months. Consumer inflation is showing increasingly clear signs of broadening across goods and services amid higher energy prices and the weaker yen.
The uptrend in prices was confirmed by the September Tokyo CPI, a leading indicator of the nationwide trend. But the pace of increase in the nationwide figures is not expected to be as strong as in Tokyo, as some policy measures were specific to the capital. These included a reduction of free nursery school fees and the end of water bill subsidies for the peak summer months.
Nationwide consumer inflation is nevertheless expected to accelerate in September as retailers continue to pass higher labor, materials, packaging and transportation costs on to consumers, keeping prices elevated.
Reflecting this trend, the core CPI, which excludes fresh food, is expected to rise 2.1 percent on the year in September, compared with 1.7 percent a month earlier. This would be the highest rate of increase since December 2025, when it reached 2.4 percent and the first time the index has risen above the 2 percent mark since then.
The other two key inflation measures are also expected to rise above the BOJ’s 2 percent target. The headline CPI is forecast to rise 2.1 percent on the year in September, up from 1.9 percent in August, while the core-core CPI, which excludes fresh food and energy, is projected to increase 2.3 percent, compared with 1.9 percent a month earlier.
Definition
The Consumer Price Index (CPI) is a measure of the average price level of a fixed basket of goods and services purchased by consumers. Annual changes in the CPI represent the rate of inflation.
Description
The CPI has been in the spotlight as Japan struggled to make its way out of deflation. The report tracks changes in the price of a basket of goods and services that a typical Japanese household might purchase. The preferred measure is the year over year percent change. Markets will typically pay more attention to the core measure that excludes only fresh food because volatile food prices can distort overall CPI. A second core measure that excludes energy as well is also available. As the most important inflation indicator, the CPI data are closely monitored by the Bank of Japan. Rising consumer prices may prompt the BoJ to raise interest rates in order to manage inflation and slow economic growth. Higher interest rates make holding the yen more attractive to foreign investors, and this higher level of demand will place upward pressure on the value of the yen.
An investor who understands how inflation influences the markets will benefit over those investors that do not understand the impact. Inflation is an increase in the overall prices of goods and services. The relationship between inflation and interest rates is the key to understanding how indicators such as the CPI influence the markets and your investments.
Inflation (along with various risks) basically explains how interest rates are set on everything from your mortgage and auto loans to government securities. As the rate of inflation changes and as expectations on inflation change, the markets adjust interest rates. The effect ripples across stocks, bonds, commodities and your portfolio, often in a dramatic fashion.
By tracking inflation, whether high or low, rising or falling, investors can anticipate how different types of investments will perform. Over the long run, the bond market will rally (fall) when increases in the CPI are small (large). The equity market rallies with the bond market because low inflation promises low interest rates and is good for profits.