Japan’s inflation fell from two-year high in June

Japan’s key inflation gauge slowed more than expected in June but remained well above the central bank’s target. The consumer price index, excluding fresh food, rose 3.3% year-on-year, just below economists’ median forecast of 3.4%. The reading marks a slowdown from May’s 3.7% gain, the highest in two years, as reported by the country’s Ministry of Internal Affairs and Communications.

Bloomberg noted that the falling inflation is partly due to government subsidies capping rising fuel costs. But stripping out volatile food and fuel prices, the index actually sped up to 3.4%, hitting its highest level since January 2022.

Despite slowing price growth, data indicates that inflation remains persistent. This poses political risks for Prime Minister Shigeru Ishiba ahead of the upper house election. In case of losing its majority, his government may be forced to compromise with opposition parties pushing for looser fiscal policies to support households, the news agency said.