BOJ Rate Hike Looms as Japan's Core Inflation Hits 1.8% in July

Japan's core inflation has picked up in July, reaching 1.8% year-over-year, according to Reuters. This marks an increase from June's 1.6%, and revives expectations that the Bank of Japan (BOJ) may raise interest rates again at its upcoming September meeting.

The BOJ-watched gauge, which strips out fresh food and fuel prices, rose to 1.9% in July, while service inflation inched up to 1.2%. These numbers suggest that companies are gradually passing on higher labor costs to customers.

However, the government's fuel subsidies are still holding down headline price growth, keeping it below the BOJ's 2% target. The weak yen is also a concern, as it raises import costs and could lead to higher wholesale prices filtering through to consumers over time.

A possible BOJ rate hike to 1.25% would put pressure on the yen carry trade, making it less attractive to borrow in yen and buy higher-yielding assets overseas. This could also change incentives for Japan's big insurers and pension funds, making them more likely to keep their money in Japan.