Japan's Inflation Cools, but Core Prices Remain Elevated

According to the latest data, Japan's core inflation rate, which excludes the cost of fresh food, has cooled to 3.1% in July, down from 3.3% the previous month. However, the "core-core" inflation rate, which strips out prices of both fresh food and energy and is closely monitored by the Bank of Japan (BOJ), held steady at 3.4%.

The easing of inflation was also seen in the rice market, where prices have shown signs of stabilizing after a shortage and skyrocketing costs earlier this year. In July, rice inflation eased to 90.7%, following two months of inflation surpassing the 100% mark. Data from Japan's agricultural ministry indicates that the average price of a 5-kilogram bag of rice in supermarkets has dropped from a high of 4,469 yen to 3,737 yen as of early August.

Despite the overall cooling of inflation, Japan's central bank has upgraded its forecasts, expecting core inflation to reach 2.7% in the 2025 fiscal year, up from its previous projection of 2.2%. The "core-core" inflation expectations were also raised to 2.8% from 2.3%.

The latest inflation figures come as Japan's economy grew a better-than-expected 0.3% in the second quarter, mainly supported by net exports. However, the country's trade performance has shown signs of sluggishness, with exports falling at their sharpest pace in over four years in July, as shipments to the United States and China declined.