Japanese Inflation Stays Below BOJ Target Despite Pickup in June

Japan's consumer price index (CPI) inflation rose as expected in June, while core inflation remained below the Bank of Japan's annual target. According to government data released on Friday, core CPI inflation increased by 1.6% year-on-year, which is in line with expectations and below the BOJ's 2% annual target.

The core reading that excludes both fresh food and energy prices fell to 1.7% in June from 1.8% in the prior month. This print is closely watched by the BOJ as a gauge of underlying inflation.

Headline CPI rose to 1.7% year-on-year from 1.5% in the prior month, which is the highest CPI reading for the year. Inflation picked up but remained relatively subdued due to government subsidies on fuel and utility that largely shielded the public from high commodity prices stemming from the Middle East war.

The BOJ meeting scheduled for soon is expected to leave interest rates unchanged amid languid headline inflation, despite a rate hike in June to a 31-year high as it forecast rising inflation risks from the Iran conflict. Japanese consumer spending was also seen picking up in recent months even with the headline inflation figure remaining unchanged.