Japan’s July core inflation seen at 1.8% on higher energy costs

Japan's core consumer inflation is projected to surge to 1.8% in July from the previous month, according to a Reuters poll of economists. This increase is attributed to rising food prices and energy cost pressures caused by the Middle East conflict, Reuters reported. The nationwide core consumer price index (CPI), which excludes fresh food prices, is expected to climb 1.8% year-on-year in July, up from 1.6% in June, but still below the Bank of Japan's 2% target.

Ryosuke Katagi, a market economist at Mizuho Securities, suggests that the effects of the deteriorating situation in Iran are gradually influencing consumer prices. The annual wholesale inflation rate in Japan stood at 7.2% in July, indicating mounting price pressures. Apart from inflation worries, recent joint Japanese-U.S. efforts to strengthen the weakened yen have intensified market speculation that the Bank of Japan (BOJ) may need to raise interest rates more aggressively, with another potential hike as early as next month.

The BOJ raised rates to a 31-year high in June. The internal affairs ministry will release CPI data at 8:30 a.m. on Friday, August 21 (11:30 p.m. GMT on August 20).