Tokyo's core CPI rose 1.9% year-on-year in July, with accelerating inflation paving the way for future rate hikes by the Bank of Japan.

(1) The Japanese Ministry of Internal Affairs and Communications released data on Friday showing that Tokyo's core CPI for July (excluding fresh food) rose by 1.9% year-on-year, higher than the market expectation of 1.8% and marking the second consecutive month of acceleration. The "core-core CPI" (excluding fresh food and energy) increased by 2.0%, and the overall CPI also rose by 2.0%. (2) The rise in inflation was mainly driven by a narrowing decline in electricity and natural gas costs and a steady increase in processed food prices, while gasoline prices saw a larger decline due to government measures. (3) Takeshi Minami, Chief Economist at Norinchukin Research Institute, stated that the ongoing situation in the Middle East will continue to drive up prices for energy-related commodities, and the costs of food and other items are also expected to further increase, potentially keeping inflation above 2% from this autumn onwards. Although the market broadly expects the Bank of Japan to keep interest rates unchanged today, the inflation data provides support for another rate hike in the coming months.