Japan June Core CPI Hits 1.6%, Underlying Inflation Softens

Japan's core consumer inflation accelerated in June, with the core CPI rising to 1.6% from 1.4% a year earlier, matching expectations. The headline measure also picked up, to 1.7% from 1.5%. Both remained below the Bank of Japan's 2% target.

A measure of underlying inflation, the core-core CPI that strips out fresh food and energy, eased to 1.7% from 1.8%, suggesting price pressures were contained despite the headline rebound. Food remained the main driver, with prices excluding fresh food rising 3.1% from a year earlier on higher raw material costs. Government subsidies continued to suppress energy costs, which fell 0.1% after a 2.5% decline in May. Healthcare and household durable goods also contributed to the rise.

The data are unlikely to change expectations that the BoJ will keep its policy rate unchanged at next week's meeting after raising it to 1.00% in June. Attention will center on the Bank's updated economic and inflation projections, particularly its assessment of risks from rising oil prices and the weak yen. The yen's weakness has added to import costs, a factor the BoJ will weigh. Brent crude at $100 and Japan's reliance on imported energy mean that today's inflation figures may not fully capture the potential impact if subsidies are scaled back or oil prices keep climbing. The BoJ's next meeting is a key event for forex market analysis.