Data released on Friday (August 30th) showed that core inflation in the Japanese capital Tokyo rose for the fourth consecutive month in August, easily exceeding the Bank of Japan's target level of 2%, supporting market expectations for further interest rate hikes in the future.

The Tokyo core CPI (excluding volatile fresh food costs) increased by 2.4% year-on-year in August, higher than the median market forecast of 2.2% and the 2.2% increase in July.

Another index, excluding the impact of fresh food and fuel costs, rose by 1.6% year-on-year in August after a 1.5% year-on-year increase in July. The Bank of Japan closely monitors this index and considers it a broader indicator of price trends.

The acceleration of inflation in Tokyo is regarded as a leading indicator of the national trend, which basically reflects the government's gradual cancellation of subsidies for public utility bills and the increase in rice prices caused by the intensification of food shortages due to extreme heat.

Takeshi Minami, Chief Economist of Norinchukin Institute, said, "Some one-time factors have pushed up inflation, but the underlying inflation trend will continue to slow down in the coming months

But Minami said that as wage growth is expected to drive up private consumption and push up inflation, the reasons for the Bank of Japan to further raise interest rates are becoming increasingly sufficient.

In addition, the Japanese Ministry of Economy, Trade and Industry has raised its industrial output assessment for the first time since March last year. Previously released data showed that Japan's industrial output increased by 2.8% month on month in July.

Data shows that manufacturers surveyed by the Ministry of Economy, Trade and Industry expect output to grow by 2.2% in August and shrink by 3.3% in September. But an official warned to remain vigilant about the outlook and added that the production plan for August may not be as strong as expected.

The Bank of Japan ended negative interest rates in March and raised its short-term policy rate to 0.25% in July, marking a milestone step in bidding farewell to a decade long aggressive stimulus plan.

Bank of Japan Governor Kazuo Ueda stated that if inflation continues to reach the target level of 2% in the coming years, the central bank will further raise interest rates.

The central bank expects that wage increases will push up service prices and keep inflation at around 2% for the long term.