Japan Inflation Accelerates, Bolstering Case for Rate Hike

Japan's core consumer inflation accelerated in July, reaching 1.8% year-over-year, matching analyst forecasts. The data will be a key factor for the Bank of Japan (BOJ) to consider at its next policy meeting on September 17 and 18.

The BOJ is widely expected to raise interest rates to 1.25% from 1%, with some analysts predicting even more aggressive hikes thereafter. Core inflation has remained below the BOJ's 2% target for seven consecutive months, largely due to government subsidies aimed at curbing fuel costs.

Analysts expect core inflation to accelerate above the BOJ's target in the coming months, driven by renewed tensions in the Middle East and a weak yen. 'Core consumer inflation is likely to re-accelerate given renewed tension in the Middle East, which will push up crude oil prices and add to price pressures from a weak yen,' said Masato Koike, senior economist at Sompo Institute Plus.