Japan core inflation slows to 1.7% before rate decision

Japan's core inflation slowed to 1.7 percent in August from 1.8 percent, official data showed Friday, hours before a Bank of Japan policy meeting.

The internal affairs ministry reading excludes volatile fresh food prices. It remained close to the Bank of Japan's two percent target.

Official data showed that government support for gasoline and electricity fees contributed to the slower pace of inflation. Inflation excluding both fresh food and energy stood at 1.9 percent.

The relief may be short-lived. Energy and gas prices have risen in recent weeks because of the Middle East crisis, and oil prices are again above $100 a barrel. Japan is highly dependent on oil imports.

“Inflation was little changed in August but there are mounting signs that higher energy costs are feeding through and we expect it to rise above the BoJ's two percent target before long,” said Marcel Thieliant of Capital Economics.

Some Bank of Japan members have signalled support for raising the key rate by 0.25 percentage points to 1.25 percent on Friday, which would be the highest level in more than three decades.

The yen fell in July to its weakest level against the dollar in 40 years, prompting a joint intervention in foreign exchange markets by the United States and Japan. Central bankers are also under pressure to support the currency.

The Japanese government has tried to ease the effect of inflation on households through a stimulus package, energy tax breaks and consumption-support measures. Tokyo also decided this week to cut the consumption tax on food products from eight percent to one percent for two years starting in April 2027.