Tokyo inflation hits 2.7% in September as some subsidies come to an end

Tokyo consumer inflation was 2.7% in September, breaking 2% for the first time since December 2025, as the price of bento lunches jumped 28.1% year over year.

Consumer prices excluding fresh food — known as core inflation — also rose 2.7%, compared with a 2.4% median forecast published by Reuters. The figure was 1.8% in August.

The high reading could make a rate increase by the Bank of Japan more likely.

Some of the increase was the result of the ending of government support measures. Tokyo suspended the basic water fee for customers over the summer. The fee returned to utility bills in August or September, depending on the customer’s billing cycle.

Water utility prices increased 65.6% in September year on year.

The Tokyo consumer price index, which covers Tokyo’s 23 wards, is seen as a leading indicator for nationwide price trends. Japan’s nationwide CPI will be released in late October.

The BOJ has grown increasingly vigilant against inflation overshooting its 2% core inflation target.

BOJ Gov. Kazuo Ueda said last month that the bank’s job was to encourage prices upward in the past when Japan was struggling with deflation. But the policy focus now is to keep inflation anchored at 2%.

“In that sense, we believe that we have entered a new phase in policy management,” Ueda said.

Market expectations for a BOJ’s rate increase in December stood at 82% as of Friday morning unchanged from Thursday afternoon, according to data from Totan ICAP.

The yen was trading at ¥157.8 to the dollar on Friday afternoon, just slightly stronger than just before the CPI announcement in the morning.

The central bank is scheduled to hold a two-day policy meeting on Oct. 29 and 30.

Investors see little chance of back-to-back interest rate increases, with the market pricing in just a 17% probability of the central bank making a move at the meeting this month.

The BOJ raised its policy rate — the uncollateralized overnight call rate — in September to 1.25% from 1%.

Some analysts believe that the central bank will likely take some time to assess the effect of its latest rate increase.