Japan's core inflation rate fell to 3.3% in June, marking a cooling down after a 29-month high.
This inflation rate excludes the volatile fresh food group, helping to better analyze the underlying price trends in the Japanese economy.
MAIN CONTENT
Core inflation in June has slightly decreased but remains above the Bank of Japan's (BOJ) 2% target for 39 consecutive months.
Rice prices – the main cause of rising inflation – have begun to stabilize thanks to reserve policies and improved seasonal conditions.
US tariff policies and declining exports are threatening Japan's economic recovery.
How to understand Japan's core inflation index in June 2025?
A Japanese economist stated that the core inflation rate in June decreased from 3.5% to 3.3%, in line with forecasts from major financial institutions such as Reuters. This figure is closely monitored by the BOJ to assess overall price pressure after excluding highly volatile fresh food.
Official inflation, including all groups of goods and services, has also slightly decreased from 3.5% in May to 3.3%, marking the 39th consecutive month above the 2% target set by the BOJ. The 'core-core' index, which excludes both energy and fresh food prices, has slightly increased to 3.4%, indicating that underlying inflation pressure remains.
How have rice prices affected inflation and adjustments recently?
Rice prices – an essential item in Japanese meals – rose to a record high of 101.7% in May compared to the same period last year. However, thanks to the rice reserve release policy to cool down prices, by June, the increase was only 100.2%, marking the first step towards stability.
However, according to Japanese agricultural experts, the impact of the 2023 harvest is still present as adverse weather conditions, such as storms and extreme temperatures, have reduced yields in major rice-growing areas. Full stability of rice prices will depend on the 2025 harvest.
June rice prices show 'the first positive signal' regarding food inflation control, but risks from weather still exist, according to Ms. Yuki Tanaka, an agricultural analyst, July 2025.
Ms. Yuki Tanaka, Agricultural Analyst, 07/2025
What is the impact of US tariffs on the Japanese economy and the prospects for recovery?
The CEO of a major export company in Japan assessed that President Donald Trump's imposition of a 25% tariff on most export products and maintaining tariffs on Japanese cars as of August 1 is a 'major risk' threatening Japan's economic recovery.
Japan's GDP index for Q1 2025 decreased by 0.2% compared to the previous quarter, mainly due to a decline in exports. Pressure from US tariffs along with rising living costs has decreased consumer confidence, directly impacting growth.
'Strict tariff policies are putting Japan in a difficult position, especially as exports account for a large share of the country's GDP,' said Mr. Hiroshi Kato, CEO of a Japanese import-export company, July 2025.
Mr. Hiroshi Kato, CEO of a Japanese Import-Export Company, 07/2025
Will the Bank of Japan raise interest rates amid prolonged inflation?
Analysts, including those from Bank of America, note that the BOJ has no plans to raise interest rates before January 2026, despite inflation exceeding the target for more than 3 years. BOJ Governor Kazuo Ueda focuses on inflation expectations of businesses and the public, which remain below 2%.
Inflation expectations are an important indicator assessing the likelihood of inflation becoming a sustainable issue. If this expectation rises, the BOJ will consider tightening monetary policy, but currently, it maintains a cautious stance.
Frequently Asked Questions
What is core inflation and why is it important for Japan?
Core inflation excluding volatile food reflects the true pressure of underlying prices, helping the BOJ effectively guide monetary policy and avoid decisions based on temporary fluctuations.
Why do rice prices have a significant impact on Japan's inflation?
Rice is a staple food, accounting for a significant proportion of household living costs, so fluctuations in rice prices directly affect inflation and people's livelihoods.
What is the impact of US tariffs on the Japanese economy?
Tariffs increase export costs, reduce corporate profits, and lead to a decline in GDP growth, particularly impacting the key export automobile sector.
When can the Bank of Japan raise interest rates?
Based on current inflation forecasts and expectations, the BOJ may raise interest rates starting from early 2026 if inflation pressure becomes more sustainable.
How does the rice reserve policy help cool down prices?
By releasing rice reserves, the government increases supply, mitigates strong market fluctuations, and prevents speculation, helping to stabilize prices.
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