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The Ministry of Internal Affairs and Communications reported that core consumer prices excluding fresh food rose 1.6 percent year on year in June after a 1.4 percent increase in May. This marked the first acceleration in the core rate since March and matched market forecasts even as it stayed below the Bank of Japan’s 2 percent target for a fifth straight month. The ministry pointed to elevated costs for imported energy products as the main driver with disruptions in the Strait of Hormuz linked to regional conflict feeding through to wider prices.
Statistics Bureau of Japan figures showed headline inflation advanced to 1.7 percent in June from 1.5 percent the prior month while the index excluding both food and energy eased to 1.7 percent from 1.8 percent. Government subsidies limited the rise in electricity and gas prices to a marginal 0.1 percent drop compared with a 2.5 percent decline in May. These shifts reflect how external pressures on resource imports are gradually affecting households in the world’s fourth largest economy.
Brent crude surged above 100 dollars a barrel on Thursday according to market reports as Iran backed Houthi rebels targeted Red Sea shipping and heightened fears over supplies from the Middle East. A Capital Economics assessment found that with oil prices approaching recent peaks inflation in Japan is projected to exceed 3 percent by early 2027. Marcel Thieliant at Capital Economics said “With crude oil prices approaching their recent peaks and the yen falling to fresh lows against the dollar the Bank’s concerns about upside risks to inflation won’t have dissipated.”
The yen hit a fresh four decade low against the US dollar overnight according to currency trading data exacerbating the cost of oil food and other imports for Japan. Bloomberg News reported that the rate gap with the United States and other major economies continues to fuel carry trades in which investors borrow cheaply in yen to buy higher yielding assets elsewhere. US Treasury officials warned against excessive volatility in the yen and called for further Bank of Japan rate normalisation to ease such pressures.
Prime Minister Sanae Takaichi has rolled out fuel and energy subsidies to cushion consumers from the oil price spike tied to the Middle East conflict the government said. The Bank of Japan lifted interest rates to a 31 year high in June and is widely expected to hold policy steady at its July 31 meeting though most economists anticipate a further hike by December. Reuters data indicated that the central bank is closely watching how firms pass rising input costs to households amid these imported inflation risks.
Earlier readings from the Statistics Bureau of Japan showed core inflation at 1.4 percent in May with the measure stripping food and fuel at 1.8 percent as subsidies offset some raw material increases. The combination of currency weakness and energy costs has kept underlying price pressures in focus for policymakers even as overall inflation remains moderate by historical standards. Economists continue to track monthly releases for signs that external factors could push the Bank of Japan toward faster tightening.
