Japan inflation, yen low, wages rise, BOJ hike outlook

A Reuters poll of 16 economists projected Japan’s nationwide core CPI to rise 1.6% YoY in June, up from 1.4% in May, driven by higher crude‑oil prices linked to the Iran conflict and a revision of medical‑service fees. The forecast proved accurate when data released on 24 July showed core CPI at 1.6% and headline CPI at 1.7%, while the yen slipped to roughly ¥163‑¥164 per dollar, its weakest level since the mid‑1980s. The Bank of Japan, which lifted its policy rate to 1% in June, kept the rate unchanged at its 30‑31 July meeting and warned that inflation could overshoot its 2% target, leaving the door open for a possible hike to 1.25% between October and December if price pressures persist.

Government figures showed real wages up 1.6% YoY in June – the sixth consecutive month of growth – with nominal wages rising 3.4% to 531,677 yen. The Japan Business Federation reported that 146 large companies agreed to an average 5.37% wage increase for 2026, marking the third year of over‑5% hikes and the first three‑year streak since 1989‑91.

Minutes from the BOJ’s May policy meeting revealed members’ concern over rising consumer inflation and inflation expectations near 2%, concluding that further rate hikes were appropriate. The wage surge continued, with nominal wages climbing 3.4% YoY in June—the longest run of >3% growth in 34 years—and real wages remaining positive for six months. Governor Kazuo Ueda’s hawkish comments and the strong wage momentum reinforce expectations that the BOJ could raise rates again by the end of the year, possibly as early as September.

The fiscal outlook remains modest, with the government’s FY2026 growth forecast trimmed to 0.9% amid higher oil prices and a revised inflation outlook of 2.2%.