TOKYO: Core inflation in Japan's capital accelerated for a fourth straight month in August, data showed on Friday, tracking comfortably above the central bank's 2% target and backing market expectations of more interest rate hikes ahead.

The Tokyo core consumer price index (CPI), which excludes volatile fresh food costs, rose 2.4% in August from a year earlier, faster than a median market forecast of 2.2% and the 2.2% gain in July.

A separate index that strips away the effects of both fresh food and fuel costs, closely watched by the BOJ as a broader price trend indicator, rose 1.6% in August from a year earlier after a 1.5% rise in July.

The accelerated Tokyo inflation, considered a leading indicator of nationwide trends, largely reflected a phase-out of government subsidies on utility bills and rising rice prices due to intensifying shortages caused by extreme heat.

"Some one-time factors pushed up inflation but the underlying inflation trend will continue to moderate in coming months," said Takeshi Minami, chief economist at Norinchukin Research Institute.

But with wage growth expected to drive private consumption and push up inflation, the case is growing for the Bank of Japan to raise interest rates further, Minami said.

Separately, the Ministry of Economy, Trade and Industry upgraded its assessment on industrial output for the first time since March last year, after releasing data that showed output rose 2.8% in July from the previous month.

Manufacturers surveyed by the ministry expect output to increase 2.2% in August and contract 3.3% in September, the data showed.

But an official cautioned vigilance over the outlook, adding production plans might not be as strong as expected in August.

The BOJ ended negative interest rates in March and raised its short-term policy rate to 0.25% in July in landmark steps away from a decade-long radical stimulus programme.

BOJ Governor Kazuo Ueda said the central bank would raise rates further if inflation remains on track to durably hit its 2% target in coming years, as the BOJ board projects.

The central bank expects rising wages to push up service prices and keep inflation durably around 2%.

 - Reuters