Japan’s key consumer prices continued to rise at the same pace in July, amid increasing speculation that the Bank of Japan (BOJ) may ramp up its stimulus as early as next month.
Prices excluding fresh food rose 0.6% in July from a year earlier, matching economists’ median estimate, according to data from the internal affairs ministry.
The downward impact of sharper falls in gasoline costs was cancelled out by firmer mobile phone handset prices.
A stubbornly low inflation rate makes it harder for the BOJ to argue it’s slowly but steadily making progress toward its 2% inflation target. Price growth is expected to slow further in coming months as a result of lower oil prices and government measures to make pre-school education free.
Some Bank of Japan watchers see a growing chance of Japan’s central bank ramping up its stimulus measures as early as September given a gloomier economic outlook that is likely to prompt the Federal Reserve and European Central Bank (ECB) action, moves that could strengthen the yen.
Overall, Japan’s consumer prices rose 0.5% in July, weaker than economists’ median forecast of 0.6% and the June reading of 0.7%.
“At this moment, a major concern for the central bank in Japan is the exchange rate. If the BOJ admits they are no longer able to achieve the 2% inflation target, that might trigger the yen’s appreciation,” Sayuri Shirai, a visiting researcher at the ADB Institute and a former BOJ board member, told Bloomberg TV.
Still, Prime Minister Shinzo Abe’s government appears relatively comfortable with recent tepid price growth, given its concerns that a sales tax increase in October will squeeze household budgets over the following months.