Japan’s inflation finally cooled in June, but don’t break out the champagne just yet. The slowdown came right on target, but sticky price pressures, election jitters, and Trump’s tariff threats are still lurking in the background — and traders can’t afford to ignore them.
Here’s what you need to know and why it matters.
1. Core Inflation Cools, But Still Above BoJ’s Comfort Zone
Japan’s core inflation dropped to 3.3% in June, down from May’s 29-month high of 3.7%, as rice prices, the main culprit last month, eased slightly. Headline inflation also landed at 3.3%, meeting forecasts and marking the 39th straight month above the BoJ’s 2% target.
Inflation looks like it is moderating, but it’s still running hot compared to BoJ’s goal, keeping the rate-hike debate alive.
Japan June CPI inflation slowed to 3.3%yoy from 3.5%yoy. Core (ex food and energy) was flat at 1.6%yoy. Still no urgency for the BoJ to raise rates again.
(Goldman Sachs chart)— #Shane Oliver (#@ShaneOliverAMP)
2:15 AM • Jul 18, 2025
2. “Core-Core” Inflation Tells Another Story
The closely watched core-core index (excluding fresh food and energy) inched higher to 3.4% from 3.3%, signaling that sticky underlying price pressures remain. Harumi Taguchi of S&P Global warned that while energy subsidies and rice stock releases will help, the outlook isn’t clear-cut:
Yen weakness could reignite import inflation.
Real wages continue to shrink, adding pressure on consumption.
Inflation easing is good, but the structural risks haven’t gone away.
3. Tariffs + Politics = Volatility Cocktail
Just as Japan breathes a little easier on prices, Trump’s tariff bombshell hits the headlines. With 25% tariffs on Japanese goods starting Aug. 1 and trade talks stalling, growth risks are back in focus. Add the July 20 Upper House election, with Ishiba’s coalition at risk of losing its majority , and markets are staring at a recipe for uncertainty.
State Street’s Krishna Bhimavarapu sees GDP growth averaging just 0.4% YoY in 2025, and even expects another BoJ hike this year, but admits conviction is fading fast.
4. Growth Outlook: Fragile at Best
Japan’s economy already showed cracks with Q1 GDP falling 0.2% QoQ, the first contraction in a year as exports slid sharply. Throw in Trump’s tariff deadline and weak domestic demand, and the recovery story starts looking shaky. The Bank of Korea has already slashed its growth forecasts; Japan could be next.
5. USD/JPY Chart Overview
USD/JPY continues to dance around key levels as market sentiment reacts to shifting Fed-BoJ dynamics. The recent rebound toward 148.70 signals strong bullish momentum after weeks of consolidation, but resistance near 149.76 looms large. A sustained break above this could open the door toward the psychological 150.00 area, while failure to hold could invite another pullback toward 146.50, a critical support aligned with prior lows. For now, the short-term bias leans neutral to slightly bullish, but beware: renewed tariff risks or global risk aversion could revive safe-haven flows into the yen, quickly flipping this narrative.
Here’s the Takeaway:
Japan’s inflation cooled as expected, but don’t confuse relief with resolution. Sticky core prices, looming tariffs, political risk, and fragile growth keep the macro fog thick. For us traders, the real story sits at the intersection of BoJ policy and U.S. trade tensions. Let’s keep USD/JPY on our radar because one tweet or data miss could light the fuse.