Japan Core Inflation Seen Rising in June, Strengthening BOJ Rate Hike Outlook

Japan's core consumer inflation likely accelerated in June as higher energy prices and revised medical service fees offset easing food inflation, reinforcing expectations that the Bank of Japan (BOJ) could continue raising interest rates.

According to a Reuters poll of 16 economists released Friday, Japan’s nationwide core consumer price index (CPI), which excludes fresh food but includes energy costs, is expected to increase 1.6% year-on-year in June. That would be an improvement from May’s 1.4% reading, although inflation would remain below the BOJ’s 2% target for a fifth consecutive month.

Economists attributed the expected pickup largely to rising crude oil prices linked to ongoing tensions in the Middle East. Keisuke Kobayashi, an economist at Mitsubishi UFJ Research & Consulting, said the rebound reflects higher energy costs as the earlier decline in energy prices has moderated due to elevated oil prices.

Mizuho Securities market economist Ryosuke Katagi added that revisions to Japan’s medical service fees are also expected to contribute to stronger inflation. He noted that the economic impact of the escalating Iran conflict is likely to become more evident during the summer as energy costs continue filtering through the economy.

The inflation data will be closely monitored by BOJ policymakers ahead of their policy meeting later this month, where officials will conduct their quarterly review of economic growth and inflation forecasts. A stronger-than-expected CPI reading could reinforce the central bank’s confidence that underlying price pressures remain resilient despite headline inflation staying below its official target.

Additional inflationary pressure is already emerging elsewhere in the economy. Japan’s wholesale inflation climbed 7.1% in June from a year earlier, marking its fastest annual increase since March 2023 and highlighting persistent cost pressures for businesses.

Although the United States and Iran reached a tentative agreement in June aimed at ending their conflict, the ceasefire has remained fragile, with both countries continuing to exchange missile strikes. The prolonged geopolitical uncertainty has supported higher global oil prices, adding to inflation risks for energy-importing nations such as Japan.

Japan’s Ministry of Internal Affairs and Communications is scheduled to release the official June CPI report at 8:30 a.m. JST on July 24.