Core Viewpoint - Japan's core inflation rate in July has slowed for the second consecutive month but remains above the Bank of Japan's 2% target, leading to market expectations of potential interest rate hikes in the coming months [1] Group 1: Inflation Data - In July, the nationwide core Consumer Price Index (CPI), excluding fresh food, rose by 3.1% year-on-year, surpassing the market forecast of 3.0% [1] - This increase is lower than June's 3.3% rise, indicating a deceleration in inflation [1] - Another index, which excludes fresh food and fuel costs, increased by 3.4% year-on-year in July, a key measure closely monitored by the Bank of Japan [1] Group 2: Economic Implications - The persistent rise in food and raw material prices has kept Japan's core inflation rate above the central bank's target for over three years [1] - Concerns among policymakers are growing regarding the potential for second-round price effects due to sustained inflationary pressures [1]

Core Viewpoint - There is a growing call within the Bank of Japan (BOJ) to abandon the vague inflation indicator known as "potential inflation," as concerns about second-round price effects rise, prompting some members to advocate for a more hawkish communication strategy and a clearer path for future interest rate hikes [1][4] Group 1: Inflation Concerns - Some BOJ members are urging a shift in focus from "potential inflation" to actual price changes and inflation expectations, highlighting the need to address the risks of rising prices [1][4] - The core consumer inflation in Japan rose by 3.3% year-on-year in June, exceeding the BOJ's 2% target for over three years, primarily driven by an 8.2% increase in food prices [4] Group 2: Policy Communication - The BOJ's current communication strategy is under scrutiny, with some members suggesting that the concept of "potential inflation" may not align with reality, indicating a potential shift in messaging as the next interest rate hike approaches [5] - There is a lack of consensus within the BOJ regarding a comprehensive adjustment of the communication strategy, although some members are publicly calling for a more hawkish stance [4] Group 3: Economic Outlook - The BOJ's pessimistic sentiment regarding the economic outlook has eased following a trade agreement with the United States in July, but concerns about persistent inflation remain [3][4] - The BOJ has indicated readiness for further interest rate hikes, but external factors, such as U.S. tariffs, complicate the timing of these decisions [3]