Bank of Japan Faces Pressure to Hike Rates Amid Rising Inflation
The Bank of Japan's next move on interest rates is highly anticipated after June's core inflation index rose for the first time in three months. According to data released by Japan's Ministry of Internal Affairs and Communications, the consumer price index (CPI) excluding fresh food increased 1.6% year-over-year, matching economists' median forecast. The 'core-core CPI,' which excludes both fresh food and energy, also rose 1.7% year-over-year.
The main driver behind accelerating inflation is energy costs, although government subsidies have kept prices on a year-over-year decline. However, the pace of that decline has narrowed significantly compared to the previous month. Durable goods and medical expenses have also contributed to the increase in inflation.
Taro Saito, head of economic research at the NLI Research Institute, stated: 'Today's data indicate that the Bank of Japan does not face an urgent need to raise interest rates significantly; however, the recent depreciation of the yen suggests that the central bank may have to act sooner rather than later.'
About half of Bank of Japan watchers expect the next rate hike to occur in December, while another 40% forecast it for October. The depreciation of the yen could drive up the prices of imported food and durable goods.