BOJ Rate Hike Odds Rise as Japan Inflation Accelerates

Japan's consumer price index excluding fresh food rose to 1.8% in July from a year earlier, marking its second consecutive month of acceleration. This increase is seen as a positive sign for the Bank of Japan (BOJ) as it considers raising interest rates. The BOJ has been monitoring inflation closely, and Governor Kazuo Ueda indicated that authorities might start normalizing policy at a faster pace.

The consumer price index excluding fresh food was expected to rise 1.6% in July, but the actual figure came in higher. This increase is attributed partly to energy costs, which rose 0.6% year on year, and snack food prices, which also contributed to the gain. However, the overall reading was distorted by government measures to ease the impact of rising energy costs.

Yoshiki Shinke, senior executive economist at Daiichi Life Research Institute, believes that 'today's data backs BOJ's concerns over inflation.' He thinks it is reasonable to have a base case for a BOJ rate hike in September. The BOJ has stated its expectation that the CPI print excluding fresh food will rise 'clearly above' 2% from the second half of this fiscal year.

The acceleration in prices comes as Japan's labor market remains tight, leading to higher labor costs and increased pressure on companies to pass these costs on to customers. The number of food and beverage products subject to price increases this month is 83% higher than a year ago.