By Makiko Yamazaki and Satoshi Sugiyama
TOKYO (Reuters) -Japan’s core inflation accelerated for a 3rd straight month in July, knowledge confirmed on Friday, however a slowdown in demand-driven worth development may complicate the central financial institution’s choice on additional curiosity hikes in coming months.
The nationwide core shopper worth index (CPI), which excludes contemporary meals objects, rose 2.7% from a 12 months earlier, slower than a 2.6% climb in June. It matched the median market forecast and put the inflation fee at or above the central financial institution’s 2% goal for the twenty eighth straight month.
However the “core core” index, which excludes contemporary meals and vitality prices and is intently watched by the Financial institution of Japan (BOJ) as a key gauge of broader inflation tendencies, rose 1.9% after growing 2.2% in June. It dipped under the important thing 2% line for the primary time since September 2022.
“The increase in the core CPI reflected a phase-out of government subsidies to curb household utility bills, and with that factor excluded, the overall inflation has been slowing,” mentioned Masato Koike, senior economist at Sompo Institute Plus.
With utility invoice aid reinstated and the yen’s latest rebound now pushing down import prices, core CPI development “is likely to slow down hereafter,” he mentioned.
Inflation knowledge is seen as key to additional choices on fee hikes by the BOJ, which shocked markets in July by elevating rates of interest to a 15-year excessive and signalling its readiness to hike borrowing prices additional on rising prospects that inflation will durably hit its 2% goal.
The BOJ’s hawkish tone led the battered yen to soar and Tokyo shares to plunge of their largest single-day rout since 1987’s Black Monday sell-off. Markets have since stabilised.
BOJ Governor Kazuo Ueda was summoned on Friday to clarify the BOJ’s choice in July to lift rates of interest and reaffirmed his resolve to lift charges once more if inflation stayed on track to sustainably hit the two% goal.
However he additionally mentioned the central financial institution would “be highly vigilant to market developments for the time being” as monetary markets remained unstable.
Information launched final week confirmed Japan’s economic system rebounded a lot sooner than anticipated within the second quarter on sturdy consumption, backing the case for the central financial institution to proceed its financial coverage tightening marketing campaign.
In a Reuters ballot this month, 57% of economists predicted the BOJ would increase borrowing prices once more by the top of the 12 months.
