Prices in Japan remain above the Bank of Japan's (BOJ) target in July, despite a slowdown, and traders still expect another rate hike this year.

The new figures mark another month exceeding targets, extending a streak that has challenged the bank's view that inflation will subside as temporary shocks fade.

According to a Bloomberg report, investors believe the pressure could last until the end of the year.

Government data on Friday showed core consumer prices, excluding fresh food, rose 3.1% in July compared to the same period last year, after a 3.3% increase in June, the Ministry of Internal Affairs and Communications said.

Economists predict 3%, believing that cheaper energy will reduce rates after prices surged last year.

A measure that excludes both fresh food and energy rose 3.4%, unchanged from June and matching consensus.

Japan faces criticism from the US as inflation remains stubborn.

Japan's policy path is also attracting international attention as central banks must adapt to new global pressures, particularly in Tokyo.

Data shows price pressures remain stubborn. This comes about a week after US Treasury Secretary Scott Bessent criticized the BOJ's approach, telling Bloomberg TV that "they are behind the starting line." The chance of a rate hike has increased in recent weeks, driving up bond yields.

The slowdown in core CPI is widely anticipated as energy costs surged in the same period last year when a government subsidy ended. Crude oil is down about 10% compared to the same period last year.

Rice prices, a key factor this year, increased by 90.7% compared to the same period last year, down from a 100.2% increase in June. The sharp rise in this food type has caused concern among households nationwide. Officials expect the year-on-year increase to decline in the coming months as price hikes began last autumn, but record heat could damage crops and exacerbate shortages.

Processed and preserved food prices rose 8.3%, the fastest pace since September 2023. Service costs increased by 1.5%, similar to June's rate.

BOJ raises inflation forecast but may keep interest rates unchanged.

Cost of living pressures contributed to the historic failure of Governor Shigeru Ishiba's coalition in last month's election. After losing control of both houses, Ishiba faces demands from some factions of his party. Analysts are watching to see if he seeks support with new costs aimed at easing pain for households.

At the July meeting, the board of governors led by Governor Kazuo Ueda raised the inflation forecast for this fiscal year higher than expected in the quarterly outlook, mentioning food. Most expect the BOJ to keep rates unchanged at the decision on September 19.

The chance of a rate hike by the end of October is about 51%, compared to around 42% last month. On Thursday, the 10-year JGB yield reached its highest level since 2008, reflecting bets on the next policy tightening.

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