Tokyo area inflation the focus today. Meanwhile, expectations of a Bank of Japan September rate hike are firming up:
- BOJ’s Himino signals more hikes, flags growing upside inflation risk
- BOJ policymaker Himino says won’t comment on market expectations on rate hike
Where July’s Tokyo print landed
Tokyo’s July inflation data set the tone for what’s expected today. Core CPI (ex fresh food) accelerated to 1.90% in July from 1.60% in June, marking a six-month high and beating expectations. The move extended a run of acceleration, with data showing core consumer prices up 1.9% year-on-year in July 2026, following a 1.6% rise the previous month and exceeding expectations of 1.7%, the second straight month of acceleration and the fastest pace since January. Notably, the core-core measure (which the BoJ treats as its preferred underlying inflation gauge) climbed even further, with CPI excluding volatile fresh food and energy costs increasing 2.0% year-on-year, up from 1.9% in June, marking the highest reading in four months. Even so, headline inflation stayed below the Bank of Japan’s 2% target for a sixth consecutive month, with fuel subsidies and favourable base effects still cushioning some of the pressure from higher raw material costs tied to Middle East tensions.
Backdrop shaping expectations for August
The broader inflation story since has only reinforced that trajectory. Nationwide July CPI, released a few weeks later, showed core inflation matching forecasts at 1.8% y/y, while the BoJ’s own underlying price gauge ran hotter still, holding above the 2% target.
Analysts have coined the term “naphtha-flation” for the mechanism at play, oil and raw material cost increases filtering into everyday consumer goods like detergents and plastics via a weak yen and elevated crude prices. That’s hardened rate-hike bets: market pricing for a September BoJ move to 1.25% has risen to just under 80%, up from around 65% on August 7, partly on reports the Takaichi government supports earlier tightening.
One added wrinkle for comparability: the Statistics Bureau shifted its CPI base year from 2020 to 2025 starting with July’s data, which market commentary has been careful to flag when reading month-on-month moves.
This article was written by Eamonn Sheridan at investinglive.com.