Japan Core CPI Holds at 1.4%, BOJ Rate Path Unchanged

Japan's headline inflation rate edged up to 1.5% in May from 1.4% in April, the government reported Tuesday. The core CPI, which excludes fresh food, held steady at 1.4% for the second straight month.

The modest uptick in the headline figure came as the drag from expiring utility subsidies faded. Electricity and gas prices fell less sharply in May than in prior months, lifting the overall index without changing the underlying trend.

Bank of Japan Governor Kazuo Ueda has said the central bank will keep its policy rate at 0.50% until inflation settles sustainably around the 2% target. The May data gives him no reason to shift that stance. Core inflation at 1.4% remains well below the BOJ's target, and the pace of price gains has shown little acceleration since the start of the year.

Service prices, a key gauge the BOJ watches for domestic demand-driven inflation, rose 0.8% from a year earlier, matching the April pace. That suggests companies are still passing on higher labor costs only gradually, if at all.

The yen traded near 142 against the dollar after the release, little changed on the session. Japanese government bond yields held steady, with the 10-year yield at 1.12%.

Markets will watch the BOJ's July policy meeting for any shift in language around the inflation outlook. For now, the data keeps the central bank on hold.