Japan's core inflation hits 3% in February, keeps alive BOJ rate-hike bets

By Leika Kihara

TOKYO (Reuters) - Japan's core consumer prices rose 3.0% in February from a year earlier, government data showed on Friday, staying above the central bank's 2% target and reinforcing market expectations of further interest rate hikes.

The increase in the core consumer price index (CPI), which strips away the effect of volatile fresh food costs, compared with a median market forecast of a 2.9% gain.

It slowed from the previous month's 3.2% rise due largely to the resumption of subsidies to curb fuel costs.

A separate index that excludes the effects of both fresh food and fuel costs, closely watched by the Bank of Japan (BOJ) as a broader price trend indicator, rose 2.6% in February from a year earlier after a 2.5% rise in January. It was the fastest year-on-year increase since March 2024, when it rose 2.9%.

The BOJ kept interest rates steady on Wednesday but Governor Kazuo Ueda said rising food costs and stronger-than-expected wage growth could push up underlying inflation, highlighting the bank's attention to mounting domestic price pressures.

The BOJ ended a decade-long, massive stimulus last year and raised interest rates to 0.5% in January on the view Japan was on the cusp of durably hitting its inflation target.

BOJ policymakers have signalled their readiness to keep raising interest rates if they become convinced that Japan will see inflation sustained around 2% backed by solid wage gains.

(Reporting by Leika Kihara; Editing by Himani Sarkar)