Japan’s inflation fight intensifies as businesses send conflicting signals
Fresh price data strengthen the case for higher rates, but weaker services sentiment complicates the timing.
Japan’s central bank ended the week facing two signals that do not point neatly in the same direction: faster inflation in Tokyo and a business survey showing weakness beneath stronger manufacturing confidence.
Tokyo’s core consumer-price index rose 2.7% in September from a year earlier, Reuters reported on October 2. The measure excludes fresh food but includes fuel. A separate index excluding both fresh food and fuel increased 3.0%, adding to evidence that price pressure extended beyond energy alone.
The figures arrived after the Bank of Japan raised its policy rate to 1.25% in September. They added weight to the debate over further tightening, without establishing when the next increase would come.
A divided business picture
The bank’s September Tankan survey, published October 1, showed the balance of large manufacturers reporting favorable rather than unfavorable conditions rising to 24 from 22. Among large non-manufacturers, that balance fell to 35 from 37.
Those numbers are sentiment balances, not percentages of economic growth. Both groups expected conditions to weaken by December: the manufacturing forecast was 21 and the non-manufacturing forecast 30. The survey covered 9,104 enterprises and collected responses between August 26 and September 30, according to the central bank.
Reuters reported that corporate expectations of inflation remained elevated but had not accelerated from the previous survey. Manufacturers benefited from demand linked to chips and artificial intelligence, while service businesses faced higher costs and customers resisting price increases.
That combination complicates a simple argument for an immediate second rate rise. Inflation can justify tighter policy even when parts of the economy are losing momentum, but the burden of higher borrowing costs does not fall evenly across businesses and households.
Pressure inside and outside the bank
A summary of the September policy meeting, reported by Reuters on October 1, showed some policymakers favoring faster increases. Other opinions emphasized weak consumption. A government representative urged careful consideration of the cumulative effect of previous tightening.
The institutional distinction matters. The BOJ says monetary-policy decisions are made by a majority of its nine-member board. Its legal framework protects autonomy over monetary control while also requiring close contact and an exchange of views with the government. Government caution therefore forms part of the debate; it is not itself a decision to stop rate increases.
The next scheduled policy meeting was October 29–30, when the bank was also due to refresh its quarterly inflation projections. September’s Tokyo data and the Tankan offered different pieces of that assessment: stronger current price pressure, alongside businesses preparing for a less favorable quarter.