Japan’s core inflation eases to 3.3% in June

Japan’s core inflation rate fell to 3.3% in June, offering some relief after hitting a 29-month high of 3.5% in May.

The core inflation figure excludes fresh food, which fluctuates more due to weather and supply conditions.

The most recent figures, published on Friday by Japan’s Internal Affairs Ministry, were generally in line with the forecasts of economists polled by Reuters.

The headline inflation rate covers all categories and was down to 3.3% in June from 3.5% in May. Nonetheless, it is the 39th straight month that inflation has exceeded the Bank of Japan’s (BOJ) 2% goal.

A broader measure, the so-called “core-core” rate of inflation, which excludes not only fresh food but also energy prices, rose to 3.4% from 3.3% the previous month. It’s regarded as the benchmark for underlying inflation trends and is closely monitored by the BOJ.

While inflation has slowed, prices are still high compared with previous years, and the public continues to bear an increasing cost of living.

Rice prices begin to stabilize

A key driver of recent Japanese inflation has been rice, a staple in virtually every household. In May, rice prices had surged more than 101.7% year-on-year, the steepest jump in over 50 years.

But that rate slowed a bit in June. The 100.2% year-on-year jump in the price of rice was the first indication of a let-up in months.

The relaxation came after the government released rice stockpiles earlier this year to cool prices. The intervention helped shore up supply and dampen speculation in the market.

However, prices are still high, and officials warn that the ripples of that bad harvest in 2023 are still being felt. The 2023 harvest season was affected by abnormal weather, including typhoons and record heat that cut output in the main rice regions.

Although the current trend is promising, according to experts, a return to stable rice prices will depend on the 2025 harvest, which is still unknown.

Trump’s tariffs threaten Japan’s economic recovery

The confidence data comes from Japan’s economy, which is increasingly clouded by external economic uncertainties. A big one is US trade policy.

US President Donald Trump says he is not ready to strike a trade deal with Japan. That has stoked fears of additional tariffs that would damage Japanese exports, particularly of cars, the largest product that Japan ships to the United States.

A 25% tariff on a broad swath of Japanese goods will go into effect on August 1, while a 25% levy on cars will remain in place.

The introduction of these tariffs would come at a particularly challenging time for the Japanese economy. Japan has announced its GDP fell 0.2% in the first three months of 2025 compared to the previous quarter. It was the first contraction in a year, driven primarily by a steep export fall.

The financial pressure is shaping up to be a significant issue ahead of next summer’s upper house elections, in which voters remain angered by the creeping prices but stagnant wages.

The persisting inflation growth has some market participants speculating about the need for interest rate increases by the Bank of Japan. After all, the headline inflation rate has been above the 2% target for over three years.

But the central bank remains wary. Bank of America analysts have said the BOJ will unlikely raise rates before January 2026.

They say BOJ Governor Kazuo Ueda targets inflation expectations, which remain below 2%. These expectations — what businesses and households expect as future inflation — are an important signal of whether inflation is genuinely embedded in the economy.

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