Japan’s inflation has risen, further weakening the yen. Japan’s National Consumer Price Index (CPI) saw an annual increase, with headline CPI inflation climbing to 2.8% year-on-year (YoY) from 2.5%. Core CPI inflation, excluding volatile food prices, rose to 2.5% from 2.2%, though it fell short of the market forecast of 2.6%. The core-core CPI, excluding both food and energy prices and serving as a key indicator of demand-driven price movements, eased to 2.1% from 2.4%, according to government data released on Friday.
The rise in core CPI was mainly driven by a 7.2% increase in energy costs and a 14.7% hike in electricity costs, including a renewable energy levy. Service prices increased by 1.6%, down from 1.7% in April.
The Bank of Japan (BoJ) will be looking for wage growth to support consumption levels in the coming months. As the yen continues to depreciate against other currencies, Japan’s import costs will rise, further driving inflation. Additionally, the spread between Japan and US 10-year bond yields increased to 326.3 basis points.
These factors may prompt the BoJ to consider a rate hike to curb inflation and stabilize the yen.