Japan's July National CPI Rises 2.0% YoY, Core CPI Up 1.8% as Expected

Data released by Japan's Ministry of Internal Affairs and Communications on Friday showed that the national consumer price index (CPI) rose 2.0% year-on-year in July, accelerating from 1.7% in June. The core CPI, excluding fresh food, rose 1.8% year-on-year, in line with market expectations and also higher than the previous 1.6%.

**Inflation Accelerates Driven by Energy and Food Prices**

The rebound in inflation was mainly attributed to two factors. On one hand, the decline in electricity and gas prices narrowed, reducing their drag on prices. On the other hand, processed food prices continued to rise steadily. However, government subsidy measures led to a larger decline in gasoline prices, partially offsetting overall inflation. As a leading indicator of national inflation, Tokyo's core CPI had already risen 1.9% year-on-year in July, exceeding expectations, which foreshadowed the acceleration trend in the national data.

**Inflation Outlook and Policy Expectations**

Takeshi Minami, chief economist at the Norinchukin Research Institute, believes that with energy and food costs continuing to rise, Japan's inflation may remain above 2% starting from this autumn. Market data shows that although the inflation figures provide more grounds for the Bank of Japan's future policy normalization, the market generally expects the central bank to maintain its accommodative stance in the short term. Whether inflation persists and a virtuous cycle of wage growth can be established remain key factors in the Bank of Japan's decision on further adjustments to yield curve control and negative interest rate policy.