Core inflation in Japan fell to 3.3% YoY in June, down from 3.7% in May, in line with forecasts. The decline was partly driven by the reinstatement of government gasoline subsidies and a slight easing in rice prices. However, inflation has now remained above the Bank of Japan’s (BoJ) 2% target for 39 consecutive months. The core-core CPI — which excludes both fresh food and energy — rose slightly to 3.4%, signaling ongoing domestic price pressures, particularly in services and food. Despite rice prices falling following government intervention, food prices surged 8.2% YoY, and service inflation reached 1.5%, prompting speculation that the BoJ may revise its inflation forecasts and consider further rate hikes. Still, the central bank remains cautious due to uncertainty surrounding U.S. tariffs and domestic wage growth.
The yen is the weakest currency intraday, down 0.4%–0.6% against major peers, reflecting investor caution over Japan’s fragile economy and weaker-than-expected inflation data. Nonetheless, elevated inflation keeps market bets alive for a potential BoJ rate hike later this year. Other key concerns for the Japanese economy include the 25% U.S. tariffs set to take effect on August 1 and soft GDP figures.
The USDJPY pair is up 0.17% today, despite overall dollar weakness, underlining the relative weakness of the yen. Investors are also watching Japan's political landscape closely ahead of the Upper House elections on July 20, where Prime Minister Ishiba’s coalition risks losing its majority.
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