Core consumer inflation in Tokyo slowed to 3.1% in June, falling below the Bank of Japan's 2% target for the first time in over a year, primarily due to temporary cuts in utility bills and fuel subsidies.
Despite this slowdown, underlying price pressures remain, with services inflation at 2.1% and food costs rising significantly, including an 89% increase for rice. Analysts suggest that underlying inflation is still running ahead of the BOJ's forecasts, leading to expectations of further interest rate hikes, potentially in October.
The Bank of Japan, which exited its radical stimulus program last year and raised rates to 0.5%, is closely monitoring these trends. However, the economic impact of higher U.S. tariffs complicates policy decisions.
Some BOJ board members have indicated a readiness to raise rates decisively if inflation risks escalate.
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