Japan's Inflation Accelerates Amid Weakened Yen and Middle East Conflict

Japan's inflation rate accelerated in July, driven by a weak yen and the ongoing Middle East conflict. According to official data released on August 21, core inflation excluding food rose to 1.8 percent from 1.6 percent, meeting market expectations.

The Bank of Japan, which targets a 2 percent core inflation rate, is expected to raise interest rates again this year after hiking them to a 31-year high in June. The central bank's move would be in line with the views of some analysts, including Taro Kimura at Bloomberg Economics, who believes that the BoJ will raise rates to 1.25 percent from 1 percent in October.

While a weak yen benefits exporters like Toyota and Sony, it increases the cost of imports for resource-poor Japan. To shield consumers from high oil prices, Prime Minister Sanae Takaichi has introduced fuel and energy subsidies.