Consumer inflation in Japan’s capital accelerated in July: core prices moved close to the Bank of Japan’s target level amid high energy prices and rising import costs due to a weak yen.
The basic consumer price index (CPI), excluding volatile prices of fresh food, rose by 1.9% year-on-year in July, according to government data published on Friday. The figure was slightly above the forecast of 1.8% and accelerated from the 1.6% recorded in June.
The core measure, excluding both fresh food and energy, rose to 2.0% in July from 1.9% the previous month. The Bank of Japan closely watches this indicator as a measure of underlying inflation.
Headline CPI rose to 2.0% in July from 1.7% in June.
Friday’s data showed that inflation in Japan continues to accelerate amid high energy prices, especially as tensions between the United States and Iran have intensified—disrupting oil and gas supplies from the Middle East.
A weak yen further exacerbates this trend, since Japan is heavily dependent on importing food and energy. Although government subsidies have so far shielded consumers from higher energy prices, producer inflation has accelerated sharply in recent months, signaling a possible pass-through of these increases to consumer prices.
In July, the yen hit a 40-year low, but then rebounded sharply this week amid expectations of government intervention in the currency market.
Tokyo inflation data traditionally serve as a leading indicator of nationwide inflation, given the region’s economic significance.
Friday’s data were released several hours before the Bank of Japan’s meeting ended, which most market participants expect to keep rates unchanged. However, persistent inflation gives the Bank of Japan additional grounds to maintain tight monetary policy and to raise rates further in the coming months.
In June, the Bank of Japan raised the rate by 25 basis points—to 1.0%—and warned that persistent inflation and a weak yen are likely to require further hikes in the coming months.