Japan Inflation Accelerates; Private Sector Growth Improves

(RTTNews) - Japan's headline inflation accelerated to a seven-month high in July on rising food and energy prices, strengthening the expectations for a September interest rate hike by the Bank of Japan.

Japan's private sector expanded at the fastest pace in six months in August driven by a steeper increase in new orders, survey data from S&P Global showed Friday.

Inflation rose to 1.9 percent in July from revised 1.6 percent in June, the Ministry of Internal Affairs and Communications reported.

This was the highest rate since December 2025 and also exceeded forecast of 1.8 percent.

Excluding fresh food, core inflation rose to 1.8 percent, in line with forecast, from 1.6 percent a month earlier. The 1.8 percent was the strongest since January. Compared to last month, consumer prices rose 0.4 percent, as expected.

Inflation, excluding fresh food and energy, rose to 1.9 percent from 1.7 percent, data showed.

Fresh food prices surged 7.0 percent and fuel, light and water charges rebounded 0.7 percent.

Markets widely anticipate the BoJ to raise its interest rate in September. Last month, the BoJ had retained its interest rate at 1.00 percent after a quarter-point hike in June.

Elsewhere, purchasing managers' survey showed that Japan's private sector growth improved strongly in August. The composite output index picked up to 53.4 from 52.7 in July.

The output increased in each of the past 17 months and the rate of growth hit the strongest since February.

The services Purchasing Managers' Index climbed to 52.3 from 51.2. At the same time, the factory PMI posted 55.1, up from 54.5 in July.

Japan's private sector remains well placed to perform strongly going forward, provided there are no further shocks to prices or demand, S&P Global Market Intelligence Economics Associate Director Annabel Fiddes said.