Japan Core Inflation 3.1% July Above BOJ Target

Japan's core consumer price index (CPI), excluding fresh food but including energy, rose 3.1% year-on-year in July 2025, slightly down from 3.3% in June but above market expectations of 3%, indicating persistent inflationary pressures. The inflation rate remains well above the Bank of Japan's (BOJ) 2% target, strengthening expectations for another interest rate hike later this year. Despite the moderation in price growth, rising food and raw material costs have kept inflation elevated for over three years, causing some BOJ policymakers to worry about second-round price effects. The BOJ raised its inflation outlook in July and signaled openness to tightening monetary policy, although Governor Kazuo Ueda emphasized caution due to uncertainties around U.S. tariffs and their economic impact. The Japanese economy has shown resilience, bolstered by a recent U.S.-Japan trade agreement and strong GDP data, which supports the case for further rate hikes. Market participants are closely watching the BOJ's next moves amid ongoing inflation and global trade developments.