Japan Inflation Dips to Eight-Month Low Amid Rice Price Cooling

Japan's annual inflation rate eased to 3.1% in July 2025, marking the lowest reading since last November, with core inflation also at 3.1%, a five-month low. Despite this cooling, core-core inflation, which excludes fresh food and energy costs, remained steady at 3.4%, driven by earlier surges in rice prices that have recently begun to ease. The Bank of Japan (BOJ) is under increasing pressure to raise interest rates to manage the persistent inflation, with markets now seeing about a 50% chance of a rate hike by October. Recent trade improvements, including a deal with the United States that lowered reciprocal tariffs, have removed a significant barrier to potential BOJ rate increases. Meanwhile, the U.S. Federal Reserve is expected to lower rates in September after a period of holding steady, reflecting differing views on balancing inflation and employment risks. Japan's economic growth of 0.3% in the second quarter was supported by net exports, although exports declined sharply in July, particularly to the U.S. and China.