Inflation gradually shows stickiness. Japan's service industry inflation rate reached 2% for the first time in 30 years in July.

Source Eight, Japan's service industry price growth in July reached 2% for the first time in 40 years, which is a long-awaited progress for the Bank of Japan as they have been waiting for evidence of sustained inflation before formulating a normalization path for their policies. The Ministry of Internal Affairs in Japan reported on Friday that the acceleration of service industry inflation from 1.6% in June to 2% in July was driven by increases in telecommunication, accommodation, and entertainment costs. Excluding the impact of the sales tax hike in 1997, service industry inflation has remained below 2% since 1993. Nobuyasu Atago, the chief economist at Ichiyoshi Securities Co., stated, "The data confirms once again that prices are more sticky than what the Bank of Japan and the market believe." Over the past 25 years, the Bank of Japan has been trying to stimulate inflation and has taken particularly aggressive measures over the past decade, setting a 2% inflation target as a sustained level. Shunsuke Kobayashi, the chief economist at Mizuho Securities, said, "Initially, external shocks triggered inflation, but now it has become driven by internal factors. That's what the rebound in service industry inflation tells us. Regardless of what officials have publicly stated, I believe the Bank of Japan is ready to move towards normalization when needed." Due to Japanese households cutting discretionary spending for many years in response to stagnant wage growth, the momentum of service industry price increases has been weak, leading to Japan's overall inflation lagging behind other countries. The data from last Friday indicates that this situation may finally be changing after companies agreed to historically high wage hikes in this year's annual wage negotiations. The surge in inbound tourism and pent-up leisure demand have also contributed to the rise in service prices. Taro Kimura, an economist at Bloomberg Economics, said, "The continued rise in service industry prices clearly indicates that the potential trend of inflation is strengthening in a way that has not been seen in a long time. However, it is currently unclear whether this will significantly strengthen the Bank of Japan's confidence in achieving stable inflation." Although the Bank of Japan's targeted core CPI measure for July decreased from 3.3% in the previous month to 3.1%, economists expect inflation to remain sticky as it deepens and spreads. Inflation has exceeded the 2% target since April of last year. Despite this, the Bank of Japan is maintaining its loose plan, waiting to observe whether wage growth will continue to be strong enough to boost consumption.