Summary

• Tokyo’s CPI inflation rose in June, suggesting that second-round effects from higher oil prices are increasing, while Bank of Japan officials are sounding more hawkish.
• With core prices likely to accelerate going forward, we have brought forward our BoJ rate-hike call to October from December.
• We expect at least two of the BoJ hawks to push rates closer to neutral before their terms end in July 2027.

By Min Joo Kang, Senior Economist, South Korea and Japan

Tokyo inflation picked up for the first time in eight months

Headline Tokyo inflation rose 1.7% year-on-year (vs. 1.4% in May, market consensus 1.6%, ING 1.7%). Government measures and a high base