Japan’s inflation stays elevated despite easing from two-year high

Japan’s key price measure cooled a tad more than expected while remaining well above the Bank of Japan’s target, keeping pressure on Prime Minister Shigeru Ishiba to mollify voters as he heads into Sunday’s national election.

Consumer prices excluding fresh food rose 3.3% from a year earlier in June, slowing from a 3.7% gain — a two-year high — in the previous month, the Ministry of Internal Affairs and Communications reported Friday.

The median estimate of economists was for a gain of 3.4%, with expectations that the government’s energy subsidies would help moderate price growth. Slower gains in energy prices weighed on the gauge.

A deeper inflation measure that also strips out energy prices climbed 3.4%, the fastest pace since January last year, and topping the 3.3% consensus estimate.

Despite the slowdown, the data highlight the underlying strength of inflation, as Ishiba’s coalition government faces the risk of losing its majority in the upper house election Sunday. Should Ishiba sustain such a setback, his government may have to give concessions to opposition parties that have campaigned on a pledge to loosen restraints on fiscal spending to help households cope with the high cost of living.

“There are various one-off factors, so there is no need to worry too much about deceleration in the core CPI,” said Toru Suehiro, chief economist at Daiwa Securities. “If you look at the core core, it accelerated. That strong result will make it more likely for the BOJ to raise its inflation outlook later this month.”

Friday’s figures are likely to keep the BOJ on the path toward further interest rate increases as Governor Kazuo Ueda waits for clarity regarding the ongoing US-Japan tariff talks. The bank is broadly expected to keep its benchmark rate unchanged at the end of its next policy meeting on July 31.

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