Japan's core inflation slows but stays above BOJ target, keeps hike bets alive
The data highlights the challenge the Bank of Japan (BOJ) faces in balancing mounting inflationary pressure and risks to the fragile economy from U.S. tariffs, as it considers how soon to resume rate hikes from still-low levels.
The core consumer price index (CPI), which excludes volatile fresh food costs, rose 3.3% in June from a year earlier, data showed on Friday, matching a median market forecast.
The rise was smaller than the 3.7% increase in May due largely to resumption of gasoline subsidies, but remained above the central bank's 2% target for the 39th straight month.
A separate index that strips away both fresh food and fuel costs - closely watched by the BOJ as a measure of domestic demand-driven prices - rose 3.4% in June from a year earlier after increasing 3.3% in May.
"Underlying inflation remains elevated and is almost certain to overshoot the Bank of Japan's forecasts. However, with trade tensions looming large over the economy, the risk remains that the BOJ will stand pat for longer than we're anticipating," said Abhijit Surya, senior APAC economist at Capital Economics.
The data will be among factors the BOJ will scrutinise at its next policy meeting on July 30-31, when the board is expected to revise up its inflation forecast in a quarterly review of its projections.
Prices of food, excluding those of volatile fresh food like vegetables, rose 8.2% in June from a year earlier, accelerating from the previous month's 7.7% gain in a sign of the mounting cost-of-living pressures gripping households.
The cost of staple rice nearly doubled from year-before levels, which led to a 19% spike in the price of a rice ball and a 6.5% increase in sushi dine-outs, the data showed.
Service-sector inflation hit 1.5% in June from 1.4% in May, the data showed, suggesting that companies were passing on rising labour costs albeit at a slower pace than for goods.
The BOJ exited a decade-long, radical stimulus programme last year and raised short-term interest rates to 0.5% in January on the view that Japan was on the cusp of sustainably hitting its 2% inflation target.
While the central bank has signalled its readiness to raise rates further, the economic impact of higher U.S. tariffs forced it to cut its growth forecasts in May and complicated decisions around the timing of the next rate increase.
Japan's economy shrank in the first quarter as rising living costs hurt consumption. Exports fell in May for the first time in eight months, stoking recession fears.
A slight majority of economists in a June Reuters poll expected the BOJ to forgo another rate hike this year.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Reuters
23 minutes ago
- Reuters
Kashkari: Fed needs to respond to slowing economy, two cuts this year would be reasonable
WASHINGTON, Aug 6 (Reuters) - The U.S. Federal Reserve may need to cut interest rates in the near term in response to a slowing U.S. economy, even though it remains unclear whether tariffs will continue to push inflation higher, Minneapolis Fed President Neel Kashkari said on Wednesday. "The economy is slowing, and that means in the near term it may become appropriate to start adjusting," Kashkari said in an interview on CNBC's Squawk Box, adding that two quarter-percentage-point rate cuts by the end of the year "seems reasonable to me." Kashkari said concerns about rising inflation remain valid, but that it will take time to know whether that poses a problem for the Fed reaching its 2% inflation target or not. Meanwhile a weak jobs report and downward revisions to prior months' employment data add to a developing set of statistics that show the economy slowing to a degree the Fed cannot ignore, Kashkari said. Recent data "suggests the real underlying economy is slowing. I've got confidence that that is happening," Kashkari said. "How long can we wait until the tariff effects become clear? That's just weighing on me right now." Kashkari does not have a vote on interest rate policy this year, but his arguments are similar to those voiced by two Fed governors who dissented at the Fed's decision last week to hold the policy rate steady while awaiting more clarity on how rising import tariffs will feed through to consumer prices. A slowdown in job creation and rise in the unemployment rate in July have begun shifting the narrative, however, to put more focus on risks to the Fed's other goal of maintaining maximum employment.
Auto Blog
40 minutes ago
- Auto Blog
Trump says Japan to import huge Ford F-150 trucks
By signing up I agree to the Terms of Use and acknowledge that I have read the Privacy Policy . You may unsubscribe from email communication at anytime. Autoblog brings you car news; expert reviews and exciting pictures and video. Research and compare vehicles, too. The developments come just two years after the autoworker union secured landmark contracts with Detroit automakers. If your daydreams look more like blockbuster action movies, you're in luck. This LS3-swapped 1972 Chevy Chevelle is for sale right now on Exotic Car Trader. View post: Walmart Is Selling an 'Efficient' $220 Chest Freezer for Only $119, and Shoppers Say It 'Has Plenty of Room' The 2026 Corvette ZR1X has an official price as Chevrolet reveals the Quail Silver Limited Edition package. Seems Like Wishful Thinking For The Land Of The Kei Car President Donald Trump on Tuesday said Japan would import massive Ford F-150 pickup trucks following the most recent trade deal between the two countries. That seems unlikely considering Japan's preference for smaller vehicles, but the statement was typical of a president who's often cited as being fast and loose with the truth. 0:08 / 0:09 Honda may move the next-generation Civic production from Mexico to the U.S. Watch More 'They're taking our cars,' Trump said in a CNBC phone interview Tuesday. 'They're taking the very beautiful Ford F-150, which does very well. And I'm sure it'll do well there too, along with other great products.' This statement came as Japan's lead trade negotiator, Ryosei Akazawa, traveled to the United States to see that the Trump Administration honored its commitment under the revised trade deal, which lowers tariffs on Japanese automotive imports to the U.S. from 25% and 15%. Trump's Trade War Continues Trump has been threatening tariffs on most countries since taking office in January, with the auto industry a particular target. While the U.S. and Japan negotiated lower tariffs, they're still much higher than before and, according to Seeking Alpha, there's no official timeline for when the lowering of tariffs will take effect. Akazawa is expected to push for an executive order to formally implement the new tariff rates. In the interview, Trump also reiterated claims that the trade deal includes a $550 billion 'signing bonus' from Japan, although Tokyo has reportedly downplayed this, saying only 1-2% of that amount represents direct investment in the U.S. economy, while the rest consists of loans and guarantees from private firms. Ford Isn't Happy With Trade Deal Autoblog Newsletter Autoblog brings you car news; expert reviews and exciting pictures and video. Research and compare vehicles, too. Sign up or sign in with Google Facebook Microsoft Apple By signing up I agree to the Terms of Use and acknowledge that I have read the Privacy Policy . You may unsubscribe from email communication at anytime. Japan suddenly deciding to import F-150 trucks seems implausible given Ford CEO Jim Farley's recent negative comments about the trade deal. Farley said last week that the deal would actually benefit Ford's Japanese rivals, claiming lower labor costs and favorable exchange rates would make Japan-manufactured vehicles cheaper than Ford's U.S.-built vehicles with the lower 15% tariff. Ford has claimed that as much as 80% of its U.S. sales volume is domestically assembled, but that hasn't helped it avoid the impact of tariffs. During the automaker's second-quarter earnings call, Farley said Ford faced a tariff bill of $2 billion. Ford is just one of several automakers releasing dour financial results as the tariffs hit—with no relief in sight. About the Author Stephen Edelstein View Profile
Reuters
an hour ago
- Reuters
Trump imposes extra 25% tariff on Indian goods, ties hit new low
WASHINGTON/NEW DELHI, Aug 6 (Reuters) - U.S. President Donald Trump on Wednesday imposed an additional 25% tariff on Indian goods, citing New Delhi's continued imports of Russian oil in a move that sharply escalated tensions between the two nations after trade talks reached a deadlock. The new import tax, effective 21 days after August 7, will raise duties on some Indian exports to as high as 50% - among the highest levied on any U.S. trading partner. Trump's executive order imposing the extra tariff did not mention China, which also imports Russian oil. A White House official had no immediate comment on whether an additional order covering those purchases would be forthcoming. Analysts said Trump's move marks the most serious downturn in U.S.-India relations since his return to office in January. The tariffs threaten to disrupt India's access to its largest export market, where shipments totalled nearly $87 billion in 2024, hitting sectors like textiles, footwear, gems and jewelry. It also marks a shift from the warm ties seen during Trump and Modi's February meeting, they said, pointing out Trump's recent remarks calling India's economy "dead", its trade barriers "obnoxious" and accusing the country of profiting from cheap Russian oil while ignoring the killings of Ukrainians in Russia's three-and-a-half-year-old invasion of its neighbour. India's external affairs ministry called the decision 'extremely unfortunate,' noting that many other countries are also importing Russian oil in their national economic interest. "India will take all necessary steps to protect its national interests," it said, adding that purchases were driven by market factors and the energy needs of India's 1.4 billion people. The development comes as Indian Prime Minister Narendra Modi prepares for his first visit to China in over seven years, suggesting a potential realignment in alliances as relations with Washington fray. Oil prices edged up about 1% on Wednesday after falling to a five-week low in the prior session after Trump penalised India for buying Russian oil and in light of a larger-than-expected U.S. crude storage draw last week. Last week, U.S. Treasury Secretary Scott Bessent warned China that continued Russian oil purchases could trigger new tariffs, as Washington prepares for the expiry of a U.S.-China tariff ceasefire on August 12. Trade between the United States and India - the world's biggest and fifth-largest economies respectively - is worth over $190 billion. Exporters and trade analysts warn that the tariffs - which Trump casts as a driver to reduce U.S. trade deficits and reinvigorate domestic manufacturing - could severely disrupt Indian exports. "This is a severe setback. Nearly 55% of our shipments to the U.S. will be affected,' said S.C. Ralhan, president of the Federation of Indian Export Organisations. The increased duties place Indian exporters at a 30–35% disadvantage versus trade rivals in Vietnam, Bangladesh and Japan. 'With such obnoxious tariff rates, trade between the two nations would be practically dead,' said Madhavi Arora, economist at Emkay Global. Indian officials acknowledged pressure to return to negotiations with the Trump administration. A phased cut in Russian oil imports and diversification could be a part of the compromise. "We still have a window," said a senior Indian official, requesting anonymity. 'The fact that the new tariffs take effect in 21 days signals the White House is open to talks.' Another official said there were no immediate plans for Modi or senior leaders to travel to Washington, nor were any retaliatory measures being considered. Instead, the government is weighing relief for exporters, including interest subsidies and loan guarantees. A sharp drop in U.S.-bound shipments could drag India's GDP growth below 6% this year, down from the central bank's 6.5% forecast, said Sakshi Gupta of HDFC Bank. India's rupee weakened in offshore non-deliverable forwards market while stock futures fell marginally after the announcement. "While markets have already started pricing in the risk of a sharp tariff hike, a near-term knee-jerk reaction is inevitable unless there's swift clarity or a breakthrough in negotiations," said Mayuresh Joshi, head of equity research for India at Willian O' Neil. Trump's move follows five rounds of inconclusive trade talks, which stalled over U.S. demands for wider access to Indian agriculture and dairy markets. India's refusal to cut Russian oil imports - which hit a record $52 billion last year - ultimately triggered the tariff escalation. U.S. and Indian officials told Reuters a mix of political misjudgement, missed signals and bitterness scuttled trade deal negotiations between the world's biggest and fifth-largest economies, whose bilateral trade is worth over $190 billion.
