TOKYO: Inflation in Japan accelerated sharply in September, official data showed Friday, rising above the Bank of Japan's target level and paving the way for a further interest rate hike.
The acceleration was driven in particular by rising prices for processed foods against a backdrop of soaring energy costs due to conflict in the Middle East.
Excluding volatile fresh produce, inflation was 2.1%, up from 1.7% in August, according to the internal affairs ministry reading.
The figure was in line with market expectations and above the 2% target set by the central bank, further raising chances of an interest rate hike.
"With underlying inflation back above the Bank of Japan's (BoJ) 2% target, the case for further tightening remains on solid ground," said Abhijit Surya of Capital Economics.
"News reports suggest that the Bank may revise up its inflation forecasts at its October meeting. That should set the stage for another hike in December," he said.
The BoJ already raised interest rates in mid-September, in line with other major central banks around the world, in an effort to counter strong inflationary pressures driven by soaring energy prices triggered by the Iran war.
A weak yen is also driving up the price of imported goods.
Rents and automobile-related costs also contributed to inflation, the data showed.
Surya of Capital Economics said rent inflation matched "its highest rate in nearly 25 years".
However, government support for gasoline and electricity fees mitigated the impact on energy prices, according to the Internal Affairs ministry.
Excluding both food and energy, inflation stood at 2.4%, above market expectations, following a figure of 1.9% in August.
The government is trying to mitigate the impact of inflation on household purchasing power, notably with a massive stimulus package adopted at the end of 2025 and extensive tax breaks on energy.
Prime Minister Sanae Takaichi's two predecessors were undone by anger over inflation.
The government said it would slash consumption tax on food products from 8% to 1% for two years, starting in April.
However media reports said this will cost the government ¥10 trillion (US$63 billion) in lost tax revenues.
This has exacerbated concerns about Japanese public finances, with the country's debts more than double annual economic output, one of the highest ratios in the world.
Resource-poor Japan is extremely dependent on oil imports.