Japan’s July core inflation accelerates to 1.8%

Japan's core inflation rate surged to 1.8% in July, up from 1.6% in June, according to official figures released on Friday. The Ministry of Internal Affairs and Communications reported the data, which excludes volatile food prices, and it matched the expectations set by the market. When food and energy prices are taken out of the equation, inflation reached 1.9% in July, increasing from 1.7% in June and aligning with consensus forecasts.

A weaker yen, a result of the Middle East conflict and the recent US-Japan market intervention, has benefited major Japanese exporters like Toyota and Sony. However, this strengthening of the Japanese currency also raises the cost of imports like oil and food for resource-scarce Japan. Prime Minister Sanae Takaichi has implemented measures to protect consumers from the sharp increase in oil prices due to the conflict, including fuel and energy subsidies.

The Bank of Japan, which aims for a 2% target for core inflation, raised interest rates to a 31-year high in June. The central bank is expected to maintain and potentially raise interest rates throughout the year. The BOJ's rate hike could further strengthen the yen, which has lost around half of its gains following the historic joint market intervention by the United States and Japan in the previous month.