Japan's core inflation slows below 3% for first time in over a year

Japan's core inflation in September slowed below the 3 per cent threshold for the first time in over a year but stayed above the central bank target, keeping alive expectations that policymakers will phase out ultra-easy monetary policy.

The data will be among indicators the Bank of Japan (BOJ) will scrutinise at its two-day policy meeting ending on October 31, when it will produce fresh quarterly growth and price forecasts.

"While inflation weakened in September, we think inflation will only fall below the BoJ's 2 per cent target by the end of next year," said Marcel Thieliant, head of Asia-Pacific at Capital Economics.

The nationwide core consumer price index (CPI), which excludes volatile fresh food costs, rose 2.8 per cent in September from a year earlier - the first time it has slowed below 3 per cent since August 2022, government data showed on Friday. It eased from 3.1 per cent in August.

All the same, the rate has tracked above the BOJ's 2 per cent target for 18 straight months.

The core-core index, which strips away fresh food and fuel costs, rose 4.2 per cent in September from a year earlier, the data showed, slowing from a 4.3 per cent gain in August.

Markets are rife with speculation the BOJ will soon end negative short-term interest rates and yield curve control, which sets a 0 per cent cap for the 10-year bond yield, in response to broadening inflationary pressure.

The BOJ has played down the near-term chance of phasing out its massive stimulus, arguing the recent cost-driven price rises need to change into demand-driven increases in inflation for the bank to consider hiking interest rates.