BOJ Target Eludes Japan as Core Inflation Hits 1.6%

Japan's core inflation accelerated in June to 1.6% year-over-year, still below the Bank of Japan's (BOJ) target of 2%. The rise was partly due to a base effect from last year's sharp fall in gasoline prices caused by government subsidies.

The core consumer price index (CPI), which excludes volatile fresh food prices, has been steadily increasing, but analysts expect consumer inflation to accelerate later this year as the recent surge in producer prices, driven by rising fuel and import costs from the Middle East conflict and a weak yen, filter through the broader economy.

The yen's slide to a four-decade low is expected to add to inflationary pressure and keep alive market expectations of further interest rate hikes by the BOJ. Analysts are concerned that nominal wage growth may not keep pace with inflation, which will weigh on real wages and dampen consumer spending.