Bank of Japan's inflation gauge accelerates, providing grounds for further rate hikes.

The Bank of Japan's gauge of underlying inflation accelerated last month and is now well above its target, providing grounds for it to keep raising its benchmark interest rate. Consumer prices excluding fresh food and special factors rose 2.6% in August from a year earlier, accelerating from 2.3% in July, according to a report released Friday by the BOJ. Special factors include government subsidies for gasoline and utilities. The measure excluding fresh food, energy and special factors rose to 1.8% from 1.6% in July. The data came after the BOJ decided last week to accelerate the pace of rate hikes and highlighted the risk that inflation could exceed its 2% target. Government data, meanwhile, showed Japan's inflation rate running below the central bank's target, largely due to government measures to curb the cost of living. The inflation gauge the BOJ released Friday, which strips out the impact of such factors, backs its case for further rate increases. The assessment of inflation strength is particularly important after two board members voted against a rate hike last week. Junko Koeda and Ayano Sato, appointed by Prime Minister Sanae Takaichi, opposed the increase, weakening expectations for the BOJ's hawkish stance and weighing on the yen. They cited inflation as the reason for their opposition. Overnight index swap pricing shows investors see a more than 90% chance the BOJ will raise rates again by December. A survey of economists conducted before the September meeting showed 58% expect the next hike in January, while about 35% see it coming in December. The BOJ will announce its next rate decision on Oct. 30.