Tokyo Inflation Stays Above BOJ Target, Fueling Rate Hike Bets

Core consumer inflation in Tokyo remained well above the Bank of Japan’s (BOJ) 2% target in July, reinforcing expectations that another interest rate hike could come later this year. Government data released Friday showed Tokyo’s core consumer price index (CPI), excluding fresh food, rose 2.9% year-on-year, slightly below market forecasts of 3.0% and easing from June’s 3.1% increase.

A key gauge closely tracked by the BOJ — stripping out both fresh food and energy costs — climbed 3.1% in July, unchanged from the previous month, signaling persistent domestic price pressures.

The figures will weigh heavily on the BOJ’s upcoming July 30–31 policy meeting, where the central bank is expected to revise its inflation forecasts upward in a quarterly outlook. The BOJ ended its decade-long ultra-loose monetary policy last year, lifting short-term interest rates to 0.5% in January, citing sustainable progress toward its 2% inflation goal.

Market sentiment shifted further after U.S. President Donald Trump announced a trade deal with Japan on Wednesday, easing economic uncertainties that previously forced the BOJ to cut growth projections in May. Hours after the announcement, BOJ Deputy Governor Shinichi Uchida said the agreement reduces risks and strengthens the likelihood of achieving stable inflation.

A recent Reuters poll conducted before the trade deal showed most economists expect another rate hike by year-end, though few foresee a move at the upcoming meeting. Persistent price growth, combined with improving trade conditions, may bolster the case for the BOJ to tighten policy sooner than anticipated.

Japan’s inflation trajectory and BOJ’s response will remain closely watched by global markets seeking clues on the timing of future monetary tightening.