Japan Witnesses Core Inflation Stabilization

Core consumer inflation in Japan slowed in July but remained above the Bank of Japan's (BOJ) price target for the 16th consecutive month, with cost-push inflation likely to keep the central bank from abandoning monetary easing anytime soon.

The 3.1% increase in the core consumer price index (CPI), which includes oil products but excludes volatile fresh food prices, was in line with market expectations, following a 3.3% increase the previous month.

The core-core inflation index, which excludes fresh food and energy prices and is closely monitored by the BOJ as a better gauge of trend inflation, rose 4.3 percent year on year in July, accelerating from the previous month.

The central bank argues that wage pressures have yet to build up enough to warrant a fresh tweak to the ultra-loose monetary stance.

Food prices were among the major contributors to the overall inflation due to elevated prices of raw materials.

The data comes after the Bank of Japan's closely watched policy meeting on July 27-28, during which the central bank tweaked monetary policy to allow the 10-year bond yield cap to move more freely.

BOJ Governor Kazuo Ueda has emphasised the importance of keeping policy ultra-loose until cost-push inflation is replaced by robust domestic demand and higher wage growth.

Under the BOJ's yield curve control, the bank keeps short-term interest rates at -0.1% and buys massive amounts of government bonds to keep the 10-year bond yield around 0% as part of its efforts to boost inflation to its 2% target.