Inflation is heating up, exports are rebounding, and Japan's October economic data is making the central bank's interest rate hike path clearer.

The slight increase in Japan's inflation rate and the rebound in exports will allow the Bank of Japan to maintain its plan to raise interest rates in the coming months. At the same time, Japan's Prime Minister Kanji Sanae is preparing to introduce an economic plan to alleviate the public's complaints about the rising cost of living. Data released by Japan's Ministry of Internal Affairs and Communications on Friday showed that consumer prices, excluding fresh food, rose by 3% year-on-year, with accommodation, car insurance premiums, and durable goods costs driving the index higher. The data was in line with economists' median expectations, with last month's increase at 2.9%. Consumer prices have now exceeded or been at the Bank of Japan's 2% target for 43 consecutive months, the longest period since 1992. A more closely watched indicator (excluding energy) accelerated from 3% to 3.1%. Meanwhile, Japan's exports grew for the second consecutive month, as the depreciation of the yen effectively boosted export value. However, exports to the US continued to decline due to tariff policies. According to the Ministry of Finance, exports in October, measured in US dollars, increased by 3.6% year-on-year, higher than economists' previous expectations of 1.1%; exports to the US decreased by 3.1%. Kanji Sanae is set to officially unveil her first economic plan later on Friday. As a continuation of her promise to address the hardships of the people when she took office last month, she will introduce the largest fiscal spending plan since the onset of the COVID-19 pandemic. This move not only reinforces the iconic reputation of her "expansionary fiscal policy," but also sends a clear signal to bond market investors that large-scale fiscal expansion will continue to put pressure on debt financing costs. The above data will support the widespread speculation in the market that the Bank of Japan will raise borrowing costs in December or January. The yen against the dollar fell below the 157 level this week, hitting a 10-month low, and its further weakening may further stimulate inflation, providing more reason for a rate hike. Economist Tar Kimura said, "The inflation acceleration in Japan in October indicates that the Bank of Japan may raise interest rates early unless political factors interfere. Companies are raising prices for household goods and leisure services in the latter half of this fiscal year." Japan's inflation is currently experiencing structural differentiation: accommodation fees and car insurance premiums are pushing up, while the rate of increase in energy and food prices is slowing down. As the second half of Japan's fiscal year officially began in October, this period is a key window for observing corporate dynamics as businesses typically adjust prices mid-year or early in the year. The increase of 8.5% in accommodation fees and 6.9% in car insurance premiums jointly drove the price index higher; while the simultaneous slowdown in the rate of increase in processed food prices and energy costs put downward pressure on overall prices. It is worth noting that the electricity and gas subsidy policies directly lowered the overall inflation rate by 0.26 percentage points, serving as an important policy tool to curb upward inflation. Rice prices the main driver of this year's price increase rose by 40.2% year-on-year after peaking at a record increase of 101.7% in May and then falling again. Services prices, closely monitored by the Bank of Japan to assess the sustainability of price increases, rose by 1.6% year-on-year, higher than the previous 1.4%. The Bank of Japan expects that due to the surge in food prices this year, which raised the base for year-on-year comparisons, inflation will slow to below 2% in early next year. Data shows that major food companies in Japan plan to raise prices for 143 products this month, a 58% decrease from the previous year. In addition, the latest trade data demonstrates the resilience of Japan's manufacturing industry while also clearly revealing the negative impact of tariffs due to the continued pressure of the 15% tariff, exports of Japanese cars to the US fell by 7.5%, and exports of semiconductor manufacturing equipment plummeted by 49.6%. Although the trade agreement reached in July provided some temporary relief for exporters, the current tariff levels remain significantly higher than the same period last year. It is worth noting that overall export growth shows structural differentiation characteristics: semiconductors and other electronic components have become core growth engines, with shipments increasing by 15.8% year-on-year, effectively offsetting the decline in traditional industries. As the economic data is released on Friday, Kanji Sanae is putting the finishing touches on the economic stimulus plan. Earlier official data released earlier this week showed that Japan's economy contracted in the summer quarter for the first time in six quarters, with weak export performance being one of the main factors dragging down economic activity. Against this backdrop, Kanji Sanae plans to include special support policies for companies affected by US tariffs in order to alleviate the impact of external trade pressures on the domestic industry in the plan.