By Leika Kihara
TOKYO (Reuters) -Core inflation in Japan's capital held steady in September and stayed well above the central bank's 2% target, data showed on Friday, as price pressures keep alive market
expectations of a near-term interest rate hike.
The data will be among information the Bank of Japan will scrutinise at its policy meeting on October 29-30, when the board will produce fresh quarterly growth and price forecasts that will serve as key factors in its rate decision.
The Tokyo core consumer price index (CPI), which excludes volatile fresh food but includes fuel costs, rose 2.5% in September from a year earlier, slower than a median market forecast for a 2.8% gain.
The rise in Tokyo core CPI, seen as a leading indicator of nationwide trends, followed a 2.5% increase in August.
An index that strips out both volatile fresh food and fuel costs, which is closely watched by the BOJ as a better gauge of underlying inflation, rose 2.5% in September after a 3.0% gain in August.
Food inflation, excluding the cost of fresh food items like vegetables, hit 6.9% in September after a 7.4% gain in August.
The BOJ ended a massive, decade-long stimulus programme last year and raised short-term interest rates to 0.5% in January, on the view that Japan was on the cusp of durably hitting its inflation target of 2%.
While nationwide core inflation has held above 2% for well over three years, BOJ Governor Kazuo Ueda has stressed the need to tread cautiously on further rate hikes to ensure price rises are driven by wage gains and robust domestic demand.
The BOJ kept interest rates steady last week. But in a sign of growing awareness within the board about mounting price pressure, two members dissented and proposed unsuccessfully to hike rates to 0.75%.
A Reuters poll, taken before last week's BOJ meeting, showed a majority of economists expect another 25-basis-point hike by year-end. But those surveyed are split on the timing with bets centering on October and January.
(Reporting by Leika Kihara; Editing by Sam Holmes)
