Japan's Nikkei Rallies Amid Softer US Inflation, But Domestic Inflation Concerns Persist

The Nikkei 225 index rose nearly 2% on Thursday, driven by a benign US inflation report that eased pressure on global interest rates.

This gave technology and export shares another boost, even as domestic price data strengthened the case for a Bank of Japan hike next month.

The US consumer prices increased 0.1% in July and 3.4% from a year earlier, down from June's 3.5% annual pace.

This reduced the urgency for another Federal Reserve increase in September, with markets cutting the implied probability of a September Fed hike to about 40%, from 54% a week earlier.

Japan, however, faces a more complicated rates story than its neighbors, as its domestic inflation picture is becoming less comfortable.

The Bank of Japan data showed producer prices rising 7.2% in July from a year earlier, barely easing from a revised 7.3% gain in June.