Japan's Core Inflation Picks Up to 1.6%, Keeping Bank of Japan on a Hiking Path

Japan's key inflation gauge accelerated for the first time in three months, keeping the Bank of Japan on course for a further interest rate increase this year. The consumer price index excluding fresh food rose 1.6% in June from a year earlier, the Ministry of Internal Affairs and Communications reported, matching the median forecast in a survey of economists. The reading lands against a backdrop of severe currency weakness: the yen has slid toward levels last seen four decades ago against the dollar, and the central bank's trade-weighted nominal effective exchange rate index has fallen to fresh record lows, reflecting broad-based softness against the euro, sterling and several Asian currencies. Officials have signalled openness to raising rates faster than the consensus among economists, judging that a weak currency amplifies imported cost pressures. The central bank is widely expected to keep policy unchanged at its board meeting on July 31, with many analysts anticipating the next move in December, after policymakers lifted the benchmark rate to 1% in June, the highest level in about three decades. Deputy Governor Ryozo Himino has said tightening will continue while the risk of underlying inflation exceeding the 2% target is closely watched.