Japan's core inflation rate held steady at 1.4% in May, aligning with economists' expectations and suggesting that underlying price pressures are manageable. This figure, which excludes fresh food prices, remained unchanged from April. Meanwhile, headline inflation increased slightly to 1.5%, and the 'core-core' inflation rate, which excludes both fresh food and energy, decreased to 1.8%.
Following the data release, the Nikkei 225 index rose by 0.81%, and yields on 10-year Japanese Government Bonds increased to 2.637%. The Bank of Japan has recently raised interest rates to their highest level since 1995, cautioning that its key 'underlying inflation' metric may exceed the 2% target due to elevated energy prices.
Year-on-year, energy prices fell by 2.5%, a smaller decline compared to April's 3.9%. While government support has shielded households from rising prices, businesses are experiencing significant cost pressures, as evidenced by a 6.3% rise in Japan's producer price index in May, the fastest increase in over three years.
The central bank noted that the pass-through of rising crude oil prices in business transactions could lead to broader consumer price increases. Additionally, the yen remains weak, trading around 161 per dollar, which could further exacerbate inflation as Japan relies on dollar purchases for energy amidst geopolitical tensions