Japan August inflation slows ahead of expected rate hike

Stripping out both fresh food and energy, inflation stood at 1.9 per cent, the same level as in August.

Some BoJ members have sent signals suggesting they will raise its key rate by 0.25 percentage points to 1.25 per cent Friday, the highest level in more than three decades.

Pressure has increased on officials to lift borrowing costs as a spike in oil prices caused by the Middle East crisis, which shows little sign of ending anytime soon, is expected to keep putting upward pressure on inflation.

Central bankers are also minded to support the yen, which fell in July to its weakest level against the dollar in 40 years, prompting a historic joint intervention in foreign exchange markets by the United States and Japan.

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, extensive tax breaks on energy, and new measures adopted in the spring to support consumption.

Tokyo also decided this week on a drastic two-year reduction in the consumption tax on food products, from 8 per cent to 1 per cent starting in April 2027