Japan’s Inflation Hovers Well Above BOJ’s Goal Even as It Slows - What It Means for Markets

Inflation refuses to play nice with the BOJ's targets—even while cooling off.

The Price Pressure Paradox

Japan's consumer prices keep running hotter than the central bank's 2% ideal. No surprise there—traditional monetary policy moves about as fast as a government committee on a Friday afternoon.

Behind the Numbers

While the rate's dipped slightly, it's still punching well above the BOJ's weight class. They’ve been trying to hit that target for what feels like forever—meanwhile, crypto markets adjust in milliseconds, not decades.

Market Realities Bite

You’d think decades of experience would help central bankers nail this inflation thing. Instead, we get more forecasts, more meetings, and more excuses. Meanwhile, decentralized finance doesn’t ask for permission—it just executes.

Wake-up call? More like a snooze button. The old guard keeps debating points while digital assets redefine the game.

Japan faces US criticism as inflation stays stubborn

Japan’s policy path is also drawing international focus as central banks adapt to new global pressures, particularly in Tokyo.

The data show price pressures are stubborn. They landed about a week after US Treasury Secretary Scott Bessent took the unusual step of criticizing the BOJ’s approach, telling Bloomberg TV that “they’re behind the curve.” Hike odds have risen in recent weeks, lifting bond yields.

The slowdown in CORE CPI was broadly expected since energy costs spiked a year earlier when a government subsidy ended. Crude was roughly 10% cheaper than a year before.

Rice prices, a major factor this year, climbed 90.7% from a year ago, down from the 100.2% jump in June. The surge in the staple has alarmed households nationwide. Officials see year-on-year gains easing in the months ahead because the run-up started last autumn, but record heat could hurt harvests and worsen shortages.

Processed and shelf-stable food prices rose 8.3%, the quickest pace since September 2023. Service costs rose 1.5%, the same rate as in June.

BOJ raises inflation view but may hold rates

Strains on living costs contributed to a historic defeat for Prime Minister Shigeru Ishiba’s coalition in last month’s vote. Having lost control of both houses, Ishiba is facing resignation demands from parts of his party. Analysts are watching to see if he seeks support with fresh fiscal outlays aimed at easing household pain.

At the July meeting, Governor Kazuo Ueda’s board raised this fiscal year’s inflation forecast by more than expected in its quarterly outlook, citing food. Most expect the BOJ to leave rates unchanged at the Sept. 19 decision.

The chance of a rate increase by late October is about 51%, compared with around 42% last month. On Thursday, the 10-year JGB yield reached its highest since 2008, reflecting bets on further policy tightening.

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