Inflation in Japan exceeded its central bank’s 2 percent target in July, putting Bank of Japan Governor Haruhiko Kuroda’s persistence with ultra-low interest rates under more scrutiny.
The trimmed mean—the measure of price growth that factors out the biggest gains in prices and losses—climbed 1.8 percent from 2021, according to the BoJ.
The mode, which appears most frequently regarding price inflation, rose to 0.7 percent, its highest increase since 2001, while the share of consumer items showing price increases in the diffusion index rose, to 73.2 percent, the largest jump on record.
The Japanese consumer price index, a key gauge for the central bank, excluding food, rose 2.4 percent last month, with energy costs accounting for around half the gains.
It was highest level for the index since 2008, barring the impact of sales tax hikes.
However, the price gains are largely due to supply dynamics and relatively small, compared with Europe and the United States, which will likely not encourage Kuroda to normalize BoJ policy rates for now.
Japan's Other PathJapan has been an an outlier among the other G7 economies, which have been aggressively raising interest rates throughout the year to tame inflation.
The Japanese government has been implementing measures for sometime to limit price gains.
Prime Minister Fumio Kishida has ordered another round of measures to be compiled by early September, as his government plans an economic package that is expected to cut overall consumer prices by 0.5 percent through September, after it rose 2.6 percent from a year ago in July.
Another key factor is whether wage growth, which has been lagging, will catch up with inflation, leaving concerns about the potential impact of inflation on domestic spending in Japan.
Both the prime minister and the BoJ have called for robust wage gains to ensure that inflation does not lead to a consumer crisis.
Companies and unions have agreed to wage hikes, with the minimum wage being raised to a new high this year, but overall wage gains are still expected to trail inflation.
The BOJ’s current inflation outlook shows core inflation hitting 2.3 percent this year, and is forecasted to drop, to 1.3 percent in 2024.
However, some economists say that inflation may hit 3 percent or above later this year, which would further complicate the BoJ's reasoning behind its rock-bottom interest-rate policy.
“It can get there if the yen weakens to 140 versus the dollar.”