Core inflation in Japan remained below the Bank of Japan's target in May. The risk of rising fuel prices is worth paying attention to.

The Ministry of Internal Affairs and Communications in Japan announced on Friday that, due to the impact of fuel subsidies offsetting the rise in raw material prices from the conflict in the Middle East, the annual core inflation in Japan in May has been below the central bank's 2% inflation target for the fourth consecutive month. Analysts predict that consumer inflation will rise again in the coming months; producer prices have already increased significantly, with cost pressures continuing to spread, leading the Bank of Japan to potentially continue on the path of raising interest rates. Official data shows that the core consumer price index, excluding the volatile fresh food, rose by 1.4% year-on-year in May, meeting market expectations, with the same increase as in April. Another index that excludes both fresh food and fuel, which is a key indicator monitored by the Bank of Japan to measure core underlying inflation, rose by 1.8% year-on-year in May, marking the lowest increase since September 2022. The Bank of Japan raised interest rates on Tuesday to a 31-year high, a milestone in its monetary policy normalization process. The bank signaled its readiness to further tighten monetary policy to curb the upward pressure on prices caused by the energy shocks resulting from the conflict with Iran.