BOJ Hike Bets Soar as Japan's Core Inflation Accelerates to 1.8%

Japan's core inflation accelerated in July to 1.8% from a year earlier, matching forecasts and bolstering the case for an interest rate hike by the Bank of Japan. The central bank will consider this data at its next policy meeting on September 17-18, when it is expected to raise its key rate to 1.25%. The core consumer price index has remained below the BOJ's 2% target for seven consecutive months due to government subsidies aimed at curbing fuel costs.

Analysts expect core inflation to accelerate beyond the BOJ's target in the coming months as raw material costs are transferred to consumers and crude oil prices rise. Masato Koike, a senior economist at Sompo Institute Plus, said that renewed tension in the Middle East will push up crude oil prices and add to price pressures from a weak yen.

Service-sector inflation perked up to 1.2% in July from 1.1% in June, indicating firms are gradually passing on rising labor costs from a tight job market.