BOJ Rate Hike Odds Rise as Japan's Inflation Surges

Japan's inflation has accelerated for the second consecutive month in July, according to data released on August 21. Core Consumer Price Index (CPI), which excludes fresh food, rose by 1.8% year-on-year, up from 1.6% in June and meeting economists' expectations.

Overall inflation climbed 1.9%, while core-core inflation, excluding fresh food and energy, also increased to 1.9%. Higher energy costs, food prices, and dining-out expenses contributed to the increase, despite government measures providing some relief.

The processed food price rose by 3% in July, whereas rice prices fell nearly 12% following last year's sharp surge. The latest data adds to the case for further Bank of Japan (BOJ) policy normalization, particularly as yen weakness continues to create upside risks for inflation.