Japan’s core inflation rose to 1.8% in July as expected, with the energy pass-through effect and a weaker yen strengthening expectations of a rate hike in September

(1) In July, Japan's core CPI excluding fresh food rose by 1.8% year-on-year, higher than June’s 1.6% and in line with market expectations. The data confirms that price increases are rebounding moderately, driven by energy cost pass-through. (2) Ongoing Middle East conflicts continue to push oil prices higher. Although government subsidies partially alleviate the impact, policymakers expect summer energy price rises to gradually spread to a broader range of consumer goods. Meanwhile, the persistent weakness of the yen remains another major upside risk to the inflation outlook. (3) Following the joint US-Japan intervention supporting the yen, market expectations for a Bank of Japan rate hike in September have rapidly increased. This uptick in inflation data has further reinforced those expectations, and investors are closely watching the central bank’s next meeting for policy signals.