Japan’s underlying inflation gauge jumps above 3%, its highest in three years, as the BOJ meets
A three-year high in the Bank of Japan’s trend inflation measure and a 3.7% rise in services prices add to the case for another rate rise.
The Bank of Japan’s gauge of underlying inflation surged to its highest in three years, well above the bank’s 2% target, backing the case for another rate increase1. The trend inflation index hit a three-year high just as the central bank prepares to set policy3.
Separate data showed Japan’s corporate services prices rose 3.7% in September from a year earlier5. The figures, released by the Bank of Japan, are closely watched as a sign of how far price gains are spreading through the economy6. Business service prices accelerated ahead of the meeting, a sign of growing inflation that supports market expectations for the Bank of Japan to raise interest rates again by the end of the year2.
Before the data, the central bank had been expected to pause this week while sounding hawkish8.
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Why it matters to investors
The new readings arrive ahead of the Bank of Japan’s two-day policy meeting that ends on Friday, when the central bank is set to keep interest rates steady4. The bank is widely expected to pause at its October 29-30 meeting after raising rates to 1.25% in September7.
The underlying inflation rate is now above 3%, against a target of 2%1. Surveyed economists expect the Bank of Japan to hold this week but keep a hawkish tone8. Evidence of broader price pressure in services2 supports the view in markets that the next increase comes before the end of the year.
Japanese government bonds retreated as a rebound in AI shares sapped demand for haven assets7. The bond move came on the same day as the inflation data, which point to higher policy rates ahead1.
What to watch
The Friday decision is the immediate test4. Investors will look for whether policymakers cite the jump in the trend inflation gauge3 and the services-price data5 as grounds for a move at a later meeting.
The market’s working assumption is a hold this week and another increase by the end of the year2. Language that links the bank’s outlook to underlying inflation running well above the 2% target1 would reinforce that expectation. The policy rate stands at 1.25% after the September increase7, and a decision to stay put with a hawkish message8 would leave the timing of the next step to later meetings.
Sources
- BOJ’s Price Trend Indicator Jumps to Above 3%, Backing Hike Case - Bloomberg, bloomberg.com (2026-10-27)
- Japan’s Business Service Prices Accelerate Ahead of BOJ Meeting - Bloomberg, bloomberg.com (2026-10-27)
- Japan’s trend inflation index hits 3-year high, cements case for BOJ rate hike - CNA, channelnewsasia.com (2026-10-27)
- Japan’s trend inflation index hits 3-year high, cements case for BOJ rate hike, wmbdradio.com (2026-10-27)
- Japan’s September corporate services prices rise 3.7% yr/yr - Yahoo Finance, finance.yahoo.com (2026-10-27)
- Japan’s September corporate services prices rise 3.7% yr/yr - CNA, channelnewsasia.com (2026-10-27)
- Japan bonds retreat as AI share rebound saps haven demand - Fidelity Investments, fidelity.com (2026-10-27)
- Bank of Japan is expected to hold rates this week — but stay hawkish: CNBC survey, cnbc.com (2026-10-27)
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