Residential and commercial properties near the Shibuya district of Tokyo on May 4, 2023.
Richard A. Brooks | Afp | Getty Images
Japan’s core inflation rate cooled to 3.1% in July, coming down from 3.3% the month before as rice inflation continued to ease.
The figure — which strips out costs for fresh food — was higher than the 3% expected by economists polled by Reuters.
Headline inflation in the country also dropped to 3.1%, coming down from 3.3% in June and marking its lowest since November 2024.
The so-called “core-core” inflation rate, which strips out prices of both fresh food and energy and is closely monitored by the Bank of Japan, held steady at 3.4%.
Rice inflation eased to 90.7% in July, down from 100.2% in June, and after two months during which prices had more than doubled.
Rice prices have shown signs of easing after a rice shortage and skyrocketing rice prices dominated headlines in the country earlier this year, with data from Japan’s agricultural ministry showing that the average bag of five-kilogram rice in supermarkets was being sold for 3,737 Japanese yen ($25.34) for the week of Aug. 4.
At its highest, rice was retailing at an average of 4,285 yen per five-kilogram bag, while premium rice brands reached 4,469 yen.
Hirofumi Suzuki, Chief FX Strategist at Sumitomo Mitsui Banking Corporation, told CNBC that food inflation is showing signs of easing, particularly with rice prices expected to decelerate more noticeably from August to September.
“As a result, overall inflation is seen heading towards moderation going forward,” he adds, saying that this could be a factor to support a rate hike by the BOJ in September or October.
Japan’s central bank had upgraded its inflation forecasts in its economic outlook report released on July 31, saying that core inflation would come in at 2.7% for its 2025 fiscal year — ending March 2026 — up from its previous forecast of 2.2%.
“Core-core” inflation expectations were raised to 2.8% from 2.3%.
BOJ ‘behind the curve’
The 3.1% headline inflation reading was the 40th straight month that it was above the Bank of Japan’s 2% target.
“The BOJ is behind the curve [in raising interest rates],” Jesper Koll, expert director at Tokyo-based financial services firm Monex Group, told CNBC, citing the hit to purchasing power.
He argued that policy rates would have to climb to 2.5% to 3.5% for real interest rates to hit a neutral level. The BOJ’s policy rate currently stands at 0.5%.
“We’ve come full circle: in the 1990s the BOJ lost credibility by doing ‘too little too late’ in the fight against deflation; and now is is doing ‘too little too late’ in the fight against inflation,” he said, referring to the Japanese asset bubble which burst in the 1990s, leading to a multi decade slowdown in growth and deflation in the Japanese economy.
The inflation figure comes after Japan’s economy grew a better-than-expected 0.3% in the second quarter from the previous three months, mainly supported by net exports.
However, Japan’s trade saw sluggish numbers in July, with exports falling at its sharpest pace in over four years as shipments to its two largest markets — the United States and China — declined.
Japan reached a deal with Washington on July 22 that saw its so-called “reciprocal tariff” lowered to 15% from the 25% threatened by U.S. President Donald Trump earlier that month.
Source link
