Japan’s Inflation Persists Above BOJ Target Despite Slowdown

Japan’s Core inflation remained stubbornly above the Bank of Japan’s 2% target for another month, with July’s figure clocking in at 3.1% year-on-year—a slight dip from June’s 3.3% but still exceeding economist forecasts of 3%. The slowdown, attributed to cheaper energy costs, hasn’t alleviated broader price pressures. An index excluding both fresh food and energy held steady at 3.4%, signaling persistent underlying inflation.

Investors now anticipate sustained inflationary pressure through year-end, bolstering expectations of another BOJ rate hike. The central bank’s cautious stance has drawn rare public criticism from US Treasury Secretary Scott Bessent, who labeled the BOJ "behind the curve." Bond yields have risen accordingly as markets price in tighter policy.

Tokyo’s monetary policy dilemma unfolds against a global backdrop of central banks grappling with post-pandemic inflation dynamics. While energy subsidies provided temporary relief, structural factors appear to be anchoring prices higher—a reality that may force Japan’s famously dovish policymakers to further recalibrate.