–September Trade Data to Show Resilient Exports, Consumer Inflation Seen Rising Above BOJ’s 2% Target
By Max Sato
(MaceNews) – The Bank of Japan is on course toward lifting the short-term interest rate further to ensure it is clearly in a neutral zone – its original aim under the normalization process launched three years ago – but its focus has shifted to fending off a second-round inflationary effect of supply shocks as the Mideast conflict lingers and artificial intelligence projects squeeze resources.
After the BOJ board raised interest rates in a 7-to-2 majority vote last month, board member Junko Koeda, a former economics professor, told business leaders in Kumamoto City in southwestern Japan on Thursday that the bank needs to continue raising rates to remove excess stimulus effects of large-scale easing conducted for a decade from 2013.
“Given that there have been considerable upside risks to prices in addition to
continued accommodative financial conditions, the bank should not become overly cautious about raising the policy interest rate,” she said.
Later Koeda told a news conference that she has no fixed idea of how often the bank should raise interest rates.
“With an interest rate hike in June followed by another three months later, you might think the interval between them is shorter than usual but I consider both the June and September (rate hikes) as part of the normalization of interest rates,” she said. “In other words, adjusting the degree of monetary easing is something that should be done whenever possible.”
Regarding the September hike, she said, “Despite the deteriorating situation in the Middle East, the economy continued to show resilience. Therefore, I judged that it was appropriate to take another step forward in the normalization of interest rates. So, rather than saying the interval has become shorter, I believe this also reflects the fact that additional data has confirmed the economy’s resilience
to a greater extent than initially anticipated.”
While the BOJ board is staying the course for a few more rate hikes, its work can become complex if business and consumer sentiment is hit by elevated costs and more geopolitical shocks that could hurt already slow economic growth and fuel inflation beyond the wage of wage hikes.
At this point, the BOJ is widely expected to skip back-to-back rate hikes. The most likely scenario is to raise the target for the overnight interest rate to 1.50% from 1.25% in December or January, a seventh in the current cycle, and further to 1.75% in March or April. That would follow the BOJ’s 25-basis point hike each in September and June, an accelerated pattern of lifting borrowing costs every three to four months, instead of a more gradual pace of twice a year.
Fighting inflation is a common goal for the administration of Prime Minister Sanae Takaichi, who took office about a year ago and led her ruling party to a landslide win in snap elections for the lower house in February this year. She has been using fuel and utility subsidies to lower energy costs for households, which have helped ease the upward pressure on consumer prices.
However, she is having a rough ride in the parliamentary process of debating her pet project of giving a sales tax break on groceries in light of a political gaffe made by her farm minister who resigned on Wednesday. The ruling coalition led by Takaichi’s Liberal Democratic Party lacks a majority in the upper house, which could endanger the approval of the proposed tax cut in the current 69-day Diet session ending Dec. 12.
Opposition lawmakers are demanding a clear funding source and economists are questioning the stimulative effect of temporarily lowering the sales tax rate for food and beverages to 1% from the existing 8% (10% on most other goods and services) before raising it back to 8% in two years.
The latest telephone poll by the public broadcaster NHK conduced from Oct. 10 to Oct. 12 showed the approval rating for the Takaichi government slipped to 51% from 53% the previous month. It has been on a gradual downtrend after the administration started with a high 66% voter support rate in a November poll. The disapproval rate edged up to 32% in the NHK poll from 31% in September and 15%.
In NHK’s analysis, respondents were not impressed with Takaichi’s reappointments of many cabinet ministers and party policymakers in her recent reshuffle. There is also a public backlash on the Prime Minister’s pick of Kazuo Yana as agriculture minister last month. Yana is one of the 39 LDP lawmakers who were published by the party in 2024 for their involvement in a political slush fund scandal. In addition, Yana admitted news reports that he told an LDP meeting in May that he had significantly cut road construction budgets for municipalities in his constituency because their mayors did not support him.
On the data front, Japanese exports are expected to show continued resilience in the September trade report despite high U.S. tariffs and global energy prices. The national average consumer inflation rate for September is forecast to rise just above the BOJ’s 2% price stability target.
Wednesday, Oct. 21
0850 JST (2350 GMT/1950 EDT Tuesday, Oct. 20) The Ministry of Finance releases September trade.
Mace News median: exports +21.7% y/y (range: +17.9% to +24.0%) vs. +19.3% in Aug; imports +19.9% y/y (range: +17.7% to +20.1%) vs. +28.0% in Aug; trade deficit ¥78.0 billion (range: a deficit of ¥368.9 billion to a surplus of ¥45.3 billion) vs. a revised ¥1,112 billion deficit in August from ¥1,105 billion deficit; ¥277.70 deficit in September 2025
Japanese export values are forecast to post a double-digit percentage increase for the seventh straight month in September, up 21.7% on the year, as the auto industry has overcome the drag from stiff U.S. tariffs slapped last year and global demand for memory chips and non-ferrous metals remains strong. It would be their 13th consecutive rise and follow a 19.3% gain in August. Exports rose 23.2% in July to a fresh record high of ¥11.51 trillion.
Import values are expected to mark their eighth straight rise, up 19.9%, after rising 28.0% in August and soaring 27.9% to score yet another record high of ¥12.15 trillion in July. The Mideast conflict has pushed up energy and transportation costs. The value of the yen remains below year-earlier levels against the dollar, keeping Japanese imports expensive.
The trade balance is expected to show a fifth straight deficit (some expect a small surplus), with the shortfall seen narrowing to ¥78.0 billion from a revised ¥1,111.93 billion (¥1.11 trillion) deficit in August and a ¥277.70 billion deficit in August 2025.
Thursday, Oct 22
1600 JST (0700 GMT/0300 EDT Thursday, Oct. 22) The Bank of Japan releases the real export and import indexes for September and the third quarter based on the MOF’s trade data. The real export index dipped 0.8% on the month in August after rising 0.6% in July. It rebounded 1.3% in the July-August period on the April-June quarter, when it fell 1.3% from the previous quarter.
Friday, Oct. 23
0830 JST (2330 GMT/1930 EDT Thursday, Oct. 22) The Ministry of Internal Affairs and Communications releases September CPI.
Mace News median: total CPI +2.1% y/y (range: +2.1% to +2.3%) vs. Aug +1.9%; core CPI (ex-fresh food) +2.1% y/y (range: +2.0% to +2.3%) vs. Aug +1.7%; core-core CPI (ex-fresh food, energy) +2.3% y/y (range +2.2% to +2.5%) vs. Aug +1.9%
Japan’s consumer inflation is forecast to have accelerated moderately to just above the Bank of Japan’s 2% price stability target in September as the price-cutting impact of two key fiscal support programs by the Tokyo metropolitan government had waned. The lingering war in the Middel East is keeping fuel and transportation costs high while the yen remains under year-earlier levels, eroding the economy’s purchasing power.
The year-on-year increase in the core CPI (excluding fresh food) is expected to pick up to a nine-month high of 2.1% after unexpectedly easing to 1.7% in August and rising to a six-month high of 1.8% in July. It remains tame compared to a recent peak of 3.7% hit in May 2025.
The annual rate of the total CPI is also seen rising to a nine-month high of 2.1% after being steady at 1.9% in August and firming to a seven-month high of 1.9% in July. Overall inflation has come down gradually from 4.0% at the start of 2025.
Underlying inflation, as measured by the core-core CPI that exclude fresh food and energy, is forecast to climb to a six-month high of 2.3% after being unchanged at 1.9% the previous month. It is well below the recent peak of 3.4% reached in June 2025.
Tokyo’s water subsidies for the peak summer months ended for some households (others on a different charging cycle will also see the end of the program soon) and the base-year effect of free daycare services in the capital that began about a year ago has been reduced.
The pullback impact of those programs was less steep on the national level while it caused a jump in the Tokyo CPI data that is measured in the middle of the month and released ahead of the national average figures. Free base water bills and completely free daycare charges are limited to Tokyo, the only one among the 47 prefectures (some municipalities provide some support for daycare costs).
Nationwide subsidies for fuels and utilities (electricity and natural gas) are keeping energy prices below year-earlier levels, providing a slight downward pressure on overall prices. But households are expected to be hit by further markups in groceries and other necessities in coming months. High energy, import and labor costs are forcing firms in many sectors to raise prices.
Friday, Oct. 23
1500 JST (0600 GMT/0200 EDT Friday, Oct. 23) The Bank of Japan releases the twice annual Financial System Report.
In the last report released in April, the bank repeated its view that “Japan’s financial system has been maintaining stability on the whole” and that “financial intermediation has continued to function smoothly.”
On the impact of the Mideast conflict, the bank said there is a risk that firms’ commodity procurement costs could be elevated and effects through supply chains could emerge. “Under these circumstances, it remains necessary to pay close attention to the possibility that this could have an impact on firms’ financial positions and their cash flow management,” it warned.