As the effects of certain temporary government policies fade, Tokyo's core inflation indicator has risen sharply, reinforcing the Bank of Japan's stance that it will continue to raise its benchmark interest rate after accelerating the pace of policy normalization.

Data released by Japan's Ministry of Internal Affairs and Communications on Friday showed that Tokyo's consumer price index excluding fresh food rose 2.7% year-on-year in September. That figure was above the median economist estimate of 2.3%, and compared with a 1.8% increase last month.

Previously, Tokyo's expanded childcare subsidies and summer water bill reductions had pushed down this inflation indicator, so the market widely expected this reading to show an acceleration. The surge in CPI confirms the Bank of Japan's concern that upside risks to inflation may push the underlying price trend beyond its 2% target.