Japan Inflation Picks Up in July

Inflation in Japan picked up last month as the Middle East war and a weak yen pushed up prices, official data showed Friday, reinforcing expectations for a tightening of monetary policy.

Core inflation excluding food accelerated to 1.8 percent from 1.6 percent, according to the internal affairs ministry, in line with market expectations. Stripping out energy prices, inflation rose to 1.9 percent from 1.7 percent, while the unadjusted rate strengthened to 1.9 percent from 1.6 percent, also meeting consensusforecasts.

While helping big Japanese exporters like Toyota and Sony, a weak yen increases the cost of imports like oil and food for resource-poor Japan.

Prime Minister Sanae Takaichi has moved to shield consumers from the sharp rise in oil prices resulting from the Middle East conflict with fuel and energy subsidies.

The Bank of Japan, which has a two-percent target for core inflation, hiked interest rates to a 31-year high in June and is expected to raise them again this year.

A BoJ rate hike could lift the yen. The currency has given up around half of its gains that followed a historic joint market intervention by the United States and Japan last month.“The data should reinforce the BoJ’s view that underlying inflation is securing its 2 percent target.

 Our baseline is for the BOJ to raise rates to 1.25 percent from 1 percent in October,” said Taro Kimura at Bloomberg Economics. Other data released on Monday showed growth in the world’s fourth-biggest economy slowing to 0.3 percent in the second quarter from 0.5 percent in the previous three months.

The weaker-than-expected GDP came after capital expenditure fell and missed market expectations, and flat private consumption against forecasts that it would grow. Takaichi, whose two predecessors were undone by anger over inflation, has widened government support forvoters.

Following a massive stimulus package adopted in late 2025 and extensive energy tax rebates, her government approved further aid earlier this year.

The government also said last month it would slash consumption tax on food products from eight percent to one percent, starting in April.

Media reports said this will cost the government 10 trillion yen ($63 billion) in lost tax revenues over two years. This has exacerbated concerns about Japanese public finances, with the country’s debts more than double annual economic output, one of the highest ratios in the world.

These worries, as well as expectations of a BoJ rate hike, pushed yields on 10-year Japanese government bonds to their highest since 1996 on Monday. Bond yields elsewhere have also surged, with those on 30-year US Treasuries hitting near two-decade highs as the US national debt surpassed $40 trillion.