Japan’s Core Inflation Slows in June but Stays Above BOJ Target

Japan’s core inflation eased in June due to temporary utility subsidies, yet remained above the Bank of Japan’s (BOJ) 2% target—fueling ongoing expectations of further interest rate hikes.

According to official data released Friday, the nationwide core Consumer Price Index (CPI), which excludes volatile fresh food prices, rose 3.3% year-on-year in June. This matched market forecasts but marked a slowdown from May’s 3.7% gain, largely due to the reinstatement of government fuel subsidies to ease household burdens amid rising living costs.

Another key gauge of inflation that strips out both fresh food and fuel—closely monitored by the BOJ for signals of demand-driven price growth—climbed 3.4% in June, slightly above May’s 3.3% increase.

The BOJ is set to review its policy stance at its July 30–31 meeting, where it is widely expected to revise its inflation outlook upward. While the central bank ended its ultra-loose monetary policy last year and raised short-term interest rates to 0.5% in January, concerns over slowing economic growth and global trade tensions complicate the path forward. In May, the BOJ cut its growth forecasts amid mounting pressure from higher U.S. tariffs and weak domestic demand.

Japan’s economy contracted in Q1 2025 as rising inflation weighed on household spending. Adding to concerns, exports fell in May for the first time in eight months, amplifying fears of a potential recession.

Despite persistent inflation, a June Reuters poll showed a slim majority of economists expecting the BOJ to hold off on further rate hikes for the remainder of the year. Still, sustained price pressures may force policymakers to act sooner than anticipated.