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Japan’s July inflation broadens, strengthening the BoJ hike case

Headline CPI rose to 1.9% year over year, while core-core inflation reached 1.9%, near the BoJ’s 2% target, adding pressure from services and renewed energy costs.

Reported · Written up by our desk · Central Banks

Japan’s inflation pressures strengthened in July, with headline CPI increasing to 1.9% year over year from 1.6%, topping expectations of 1.7%. Core CPI excluding fresh food accelerated to 1.8% from 1.6%, while underlying “core-core” inflation excluding fresh food and energy rose to 1.9% from 1.7%, moving closer to the Bank of Japan’s 2% target. The breakdown points to pressure broadening beyond energy alone. Food excluding fresh items rose 3.0% year over year, services inflation ticked up to 1.2% from 1.1%, goods prices stayed firmer at 2.7%, and energy inflation turned positive, climbing from -0.4% to 0.6% even as electricity and gasoline remained slightly lower than a year earlier.

The inflation mix matters for policy because it points to more persistent domestic price pressure alongside rebuilding imported inflation risks. Action Forex notes that a weak yen can lift raw-material costs, and renewed Middle East tensions and higher crude prices could raise Japan’s energy import bill again.

With this data, the focus for the BoJ shifts to its next policy meeting on September 17 to 18. Action Forex said the July CPI strengthens the case for another rate increase, even though core CPI has stayed below target for a seventh straight month, and it highlighted growing uncertainty about whether tightening could move faster than about two increases per year.

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