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Japan’s inflation picks up ahead of BoJ policy meeting

Japan’s consumer prices showed signs of picking up pace in June, indicating persistent inflationary pressures as the country’s central bank gears up for its policy meeting next week.

According to the internal affairs ministry’s report on Friday, prices, excluding fresh food, rose by 3.3% from the previous year, marking a faster increase compared to the 3.2% rise in May. The acceleration was attributed to energy prices being less of a drag on inflation during the period.

Meanwhile, a more comprehensive inflation measure that excludes energy saw a deceleration to 4.2% in June, following a peak of 4.3% in May, which represented the highest rate in over four decades. Both figures aligned with market consensus.

The data could present challenges for Bank of Japan (BoJ) Governor Kazuo Ueda as he defends the case for continued monetary stimulus. While most analysts expect the central bank to maintain its current policy settings during the board meeting scheduled for July 27-28, there is speculation that the BoJ may make adjustments to its yield curve control program.

In anticipation of the upcoming meeting, the bank is projected to revise its consumer inflation forecast for the current fiscal year to 2.3%, up from the current 1.8%, as reported in a Bloomberg News survey of economists. Governor Ueda has argued in favor of maintaining an ultra-easy monetary stance, citing concerns that the recent pace of price increases may not be sustainable.

On Thursday, the government raised its overall inflation forecast for the fiscal year to 2.6%. These developments reflect the growing complexity of the inflationary landscape in Japan and set the stage for a critical BoJ meeting with far-reaching implications for the nation’s economic policies.