'Naphtha-Flation' Fuels Japan Inflation Hike Odds Skyrocket to 70%

Japan's inflation rate has picked up pace for the first time in nine months, driven by rising costs of oil and raw materials. The so-called 'naphtha-flation' has spread across consumer goods, including detergents and plastic bags.

The core-core consumer price index (CPI), which excludes volatile fresh food and energy prices, rose 1.9% in July from a year earlier. This is the first time in nine months that the pace of inflation has quickened.

Economists are forecasting that the Bank of Japan will raise its policy rate by about 0.25 percentage points to 1.25% at its September meeting, with market odds at 70%. The central bank aims to keep inflation around 2%, but some critics argue it has fallen behind as prices rise.

A weak yen is also adding pressure for a hike, following a coordinated foreign exchange intervention worth about $85 billion by the Japanese authorities and the United States. Many speculators are betting that the central bank faces pressure to raise rates to back up the government's intervention.