A shopper visits a store on the Tohoshi Ginza shopping street in Tokyo on January 23, 2025.
Philip Fong | Afp | Getty Images
JapanGovernment data released on Friday showed core inflation was 1.6% in June as higher oil prices weighed on the broader economy.
It was the first rise in core inflation since March and was in line with the 1.6% rise expected by economists polled by Reuters. Core inflation in Japan is driving down prices for fresh produce.
Headline inflation rose to 1.7% from 1.5% in May, while so-called “core” inflation, which excludes fresh food and energy prices, fell to 1.7%, the lowest level since August 2022.
Thanks to government subsidies, energy prices fell by just 0.1% year-on-year in June, compared with a 2.5% drop in May. Fuel, electricity and water bills remained flat, ending 6 consecutive months of decline.
While Japan has issued subsidies to cushion the impact of a global energy price spike on consumers, businesses have experienced a sharp rise in costs due to price spikes, with producer price index for June reaching 7.1%, the highest level since March 2023.
Japan is grappling with rising energy prices as the Middle East crisis has hit supplies, while historic weakness in yen pushed up the cost of imports.
Trade data was released on Wednesday showed that the country’s oil imports in value terms rose by more than 59% year-on-year as costs remained high. Japan supplies more than 87% of its energy needs through imports International Energy Agency.
The weak yen has fueled fears that Japan will have to contend with higher imported inflation. Shewhich traded at multi-decade lows, remained at 163.82 per dollar on Friday. Landmark of the country Nikkei 225 the stock index was 2.14% lower after the data was released.
On Wednesday, Reuters, citing sources familiar with the Bank of Japan’s thinking, reported that the central bank “remains cautious about the risks of higher inflation, which could lead to a faster rise in interest rates than markets are predicting.”
The report said some members of the Bank of Japan see an opportunity to raise rates sooner if price pressures from a weak yen and rising fuel costs from the Iran conflict cause inflation to rise faster than expected.