Key facts
- Japan's core inflation is projected to reach 1.8% in July, up from 1.6% in June.
- Higher food and energy costs are contributing to the inflation increase.
- The Bank of Japan is considering raising interest rates in September.
- The BOJ may also accelerate the pace of future rate increases.
- Wholesale inflation remained elevated in July, suggesting broader price pressures.
Japan's core consumer inflation is expected to accelerate to 1.8% in July, driven by rising food and energy costs, according to a Reuters poll. This marks an increase from 1.6% in June and signals persistent price pressures. Wholesale inflation also remained high at 7.2% in July, suggesting these costs may pass through to consumers.
Amid these inflation concerns and persistent yen weakness, the Bank of Japan is reportedly considering raising interest rates as early as its September 17-18 policy meeting. Sources familiar with the BOJ's thinking suggest the central bank may also accelerate its pace of tightening from the current rate of roughly twice a year. This potential shift comes after the BOJ warned that inflation risks could push underlying inflation above its 2% target and after a rare joint intervention with the U.S. to support the yen.
Market participants are pricing in a nearly 80% chance of a September rate hike, with some analysts suggesting a subsequent increase in December could signal a quarterly pace of tightening. The BOJ previously raised rates to a 31-year high in June.