In August, Japan's inflation rate increased for the fourth consecutive month. The market expects the central bank to remain on hold, with the possibility of a rate hike to be announced in December.

Just hours before the Bank of Japan is set to announce its latest policy decision, key inflation indicators for Japan in August accelerated for the fourth consecutive month. According to data released by Japan's Ministry of Internal Affairs on Friday, the consumer price index excluding fresh food rose by 2.8% year-on-year, slightly higher than July's 2.7%, in line with market expectations. The market widely expects the Bank of Japan to keep its benchmark interest rate unchanged at 0.25% later on Friday. Economists will closely watch Bank of Japan Governor Haruhiko Kuroda's statements on the prospects of further rate hikes in the coming months. More than half of observers expect the Bank of Japan to hike rates next in December. The Bank of Japan has indicated that it plans to further increase rates if inflation conditions meet expectations, as real interest rates remain at a relatively low negative level. Currently, the Bank of Japan's main inflation indicator has remained at or above the 2% target level for the Bank of Japan for 29 consecutive months. Yuki Okada, an economist at Meiji Yasuda Comprehensive Research Institute, stated, "With prices relatively stable, the Bank of Japan can be said to be moving toward the target of price stability at 2%. Another rate hike is still possible within the year." Bloomberg economist Taro Kimura commented, "The rise in Japan's CPI in August may boost the confidence of the Bank of Japan, that inflation is supporting underlying price trends driven by wage growth." A deeper-level index excluding energy costs and fresh food prices rose by 2%, higher than July's 1.9%. The Bank of Japan views service prices as a key indicator of price trends, with the index rising by 1.4% from the same period last year, unchanged from July. Shortly after the rate hike in July, global markets experienced a sharp decline, questioning the Bank of Japan's communication strategy. Subsequently, officials explained the central bank's policy stance, with Deputy Governor Masayoshi Amamiya stating that the Bank of Japan will not hike rates in times of market instability. Other officials, including Kuroda, emphasized that if prices and the economy meet the central bank's expectations, the Bank of Japan will continue to hike rates. It is worth noting that the Bank of Japan's policy-making is at a delicate moment against the backdrop of global market turbulence. After the significant rate cut by the Federal Reserve, any stronger signals from the Bank of Japan could further strengthen the yen, potentially putting pressure on Japanese exporters' stocks. With households and businesses increasing spending, the Japanese economy rebounded in the second quarter. Policymakers hope that strong wage growth this year will help households better cope with inflation, allowing the so-called virtuous economic cycle to take root in the economy. Real wages in Japan have risen for two consecutive months. Meanwhile, inflation has been a key issue in the upcoming election for Japan's next prime minister. Among the nine candidates running for the ruling party leadership, some are calling for further measures to help ease consumers' pain, which may mean fulfilling the promises of Prime Minister Fumio Kishida's economic package later this year. While most leadership candidates support the current stance of the Bank of Japan, Minister of Economic Security Sanae Takaichi takes a more cautious approach, stating that the Bank of Japan should be more cautious about rate hikes, as higher rates may prevent young people from buying homes or companies from investing. The Liberal Democratic Party leadership election will be held on September 27th.