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Japan's core inflation in Tokyo surged in June, market expects possible rate hike soon.

TraderKnows
TraderKnows
06-28

Data released by Japan this Friday indicated a significant rise in inflation in the capital, an unexpected development that may lead to an interest rate hike.

Core inflation in Japan's capital accelerated in June due to rising fuel costs and increased import expenses driven by the yen's depreciation. Data released on Friday suggests this trend could prompt the central bank to raise interest rates in the near future.

Additional data showed that nationwide factory output rebounded in May, primarily because automobile manufacturers recovered from transportation disruptions, giving policymakers hope for a modest economic recovery.

Analysts indicated that this data might support the Bank of Japan (BOJ) in its early-month decision to raise interest rates, as the cost pressures from a weaker yen increase the likelihood of inflation remaining above the 2% target for the coming months.

As a leading indicator of national data, Tokyo's core consumer price index (CPI) rose by 2.1% year-on-year in June, surpassing the previous month's 1.9% increase and exceeding market expectations of a 2.0% rise.

Another index, which excludes fresh food and fuel costs and is considered by the BOJ as a broader indicator of price trends, rose by 1.8% in June, up from 1.7% in May.

Marcel Thieliant, head of Capital Economics Asia-Pacific, stated that the surge in industrial product prices in the CPI seems to confirm the BOJ's concerns that rising import costs are being passed on to consumer prices more quickly than before.

He said, "The latest inflation data is consistent with our view that the central bank will further raise policy rates at the July meeting."

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Inflation

Inflation refers to the phenomenon where the purchasing power of a country's (or region's) currency decreases, leading to a general rise in the prices of goods and services. It is reflected in the fact that, over a certain period, the same amount of money can only buy fewer goods and services.

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