Japan's core consumer inflation accelerated to 1.8% year-on-year in July, matching forecasts and up from 1.6% in June, as rising energy costs and a weaker yen pushed import prices higher.
The Bank of Japan's closely watched underlying inflation measure, which excludes fresh food and fuel, also increased to 1.9% from 1.7% in June. The data follows the central bank's decision in June to raise its benchmark interest rate to 1%, the highest level in 31 years, as part of a gradual withdrawal of monetary stimulus.
Wholesale inflation surged to 7.2% in July from a year earlier, underscoring persistent cost pressures in the economy. Analysts noted that rising oil prices, driven by renewed geopolitical tensions in the Middle East, and the yen's depreciation have contributed to the upward trend in consumer prices. The yen has weakened against the dollar this year, increasing the cost of imported goods.
Despite the acceleration, core inflation remains below the BOJ's 2% target for the seventh consecutive month. Government fuel subsidies have helped temper the impact of higher energy prices on households, though their effect is waning. The central bank kept policy unchanged at its July meeting but signaled growing concerns over inflation risks, with sources indicating a potential shift toward faster rate hikes.
The BOJ's next policy meeting is scheduled for September 17–18, where markets expect a further increase in the benchmark rate from 1% to 1.25%. Historically, the BOJ has raised rates about twice a year, though policymakers are now considering a more aggressive pace in response to persistent inflationary pressures.
Senior economist Masato Koike at Sompo Institute Plus said renewed Middle East tensions could push consumer inflation higher by lifting oil prices and adding to price pressures from the yen's depreciation. He added that a September rate hike remains likely.
The data reinforces expectations that the BOJ will continue tightening monetary policy to address inflation while balancing the risks to economic growth amid global uncertainty.
