The consumer-price data released by the BOJ showed that, as of July, the measure other than the core CPI published by the Statistics Bureau had exceeded 2% for 22 consecutive months, supporting expectations of an early rate hike. The market is watching the data to gauge when the BOJ will raise rates.
The BOJ’s headline measure of consumer prices excluding fresh food rose 2.3% year on year, exceeding 2% for the 22nd consecutive month. The pace of increase slowed from 2.6% in the previous month.
Another measure apart from the core CPI showed that July CPI excluding fresh food rose 1.8% year on year. The increase accelerated from 1.6% in the previous month, but remained below the BOJ’s target.
The BOJ expects core CPI to exceed 2% in the second half of the current fiscal year, against a backdrop of higher crude oil prices, AI-related demand and the yen’s depreciation, and is becoming increasingly alert to the risk of inflation overshooting.
Markets increasingly expect coordinated intervention by Japan and the US to correct the yen’s depreciation. The interest-rate swap market is pricing in a more than 80% probability of a rate hike at the next meeting in September, rising to more than 100% when the October meeting is included. The BOJ left its policy rate at around 1.0% at its July meeting, but Governor Ueda also referred to the possibility of accelerating the pace of rate hikes. If a rate hike is delivered at the September meeting, it would be the first in three months, while an additional rate hike before year-end is also being considered.