BOJ Core Inflation Gauge Accelerates, Fueling Expectations for Another Rate Hike
nashnova research
The BOJ's subsidy-stripped core inflation hit 2.6% in August, well above its 2% target; swaps markets now price a >90% chance of another hike before December.
What does this 2.6% actually measure?
The BOJ's August gauge — stripping out fresh food and government subsidies on fuel and utilities — rose 2.6% year-on-year, up from 2.3% in July.
A narrower measure excluding non-fresh food and energy also climbed, from 1.6% to 1.8%.
This means → both gauges are accelerating, signaling that price pressures are driven by the domestic economy, not energy shocks or subsidy rollbacks.
Why strip out subsidies to see the real picture?
Government subsidies on gasoline and utilities artificially suppress headline inflation — on paper, it still sits below 2%.
In plain terms = headline inflation is wearing a filter; subsidies hide the real price increases. The BOJ needs to remove that filter to read the underlying trend.
Friday's adjusted data serve as the BOJ's core reference for deciding whether to keep raising rates.
The BOJ just hiked — but the vote was split?
The BOJ raised its benchmark rate at a faster pace last week and explicitly flagged the risk of inflation overshooting 2%.
Yet the decision was not unanimous: board members Toichiro Asada and Ayano Sato voted against, both citing inflation concerns.
This means → two dissents weakened the market's read on the board's overall hawkish stance and weighed on the yen in the short term.
Both were nominated by Prime Minister Sanae Takaichi earlier this year — this reflects political-level ambivalence about the pace of tightening.
How is the market betting on the next hike?
Overnight index swaps (OIS — derivatives used to bet on central-bank rate moves) price a >90% probability of another hike before December.
In a Bloomberg survey, 58% of economists see the next hike most likely in January; roughly 35% expect it in December.
The BOJ's next policy decision is due October 30 — until then, markets will watch inflation and wage data closely for direction.
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