The rice crisis eases, Japan's inflation cools in June, and core CPI falls to 3.3%

Japan's inflation has finally cooled down! The June CPI fell to 3.3%, mainly driven by a slowdown in rice price increases. However, this marks the 39th consecutive month that Japan's inflation has exceeded the central bank's 2% target, highlighting persistent price pressures.

On July 18, the Ministry of Internal Affairs and Communications of Japan released data showing that the June CPI fell from a 29-month high of 5% in May to 3.3%, in line with economists' expectations, primarily due to a slowdown in rice price increases.

Data shows that excluding the prices of volatile fresh foods, the core CPI in June fell from 3.7% in May to 3.3%.

Despite the cooling inflation, this is the 39th consecutive month that Japan's inflation has exceeded the central bank's 2% target. The "core-core" CPI, which is of greater concern to the Bank of Japan, actually rose from 3.3% to 3.4%, indicating that underlying inflation pressures still exist.

Analysts point out that the market holds a cautiously optimistic view on inflation prospects, expecting that the government's rice stock releases and summer energy price control measures will continue to support the decline in inflation. However, risks such as yen depreciation, U.S. tariff threats, and the upcoming Senate elections add uncertainty to the economic outlook.

Significant Relief in Rice Price Pressure

The main factor driving the cooling of inflation is the slowdown in rice price increases, indicating that the government's measures to release reserve grains are beginning to take effect.

Data shows that Japan's rice price year-on-year increase fell from 101.7% in May to 100.2% in June, although it remains at the fastest growth level in over half a century.

Japan has been troubled by soaring rice prices in the second half of 2024 and the first half of 2025. After the government released rice reserves earlier this year, prices have begun to decline but remain high.

Underlying Inflation Pressures Still Exist

It is worth noting that the "core-core" inflation rate, closely monitored by the Bank of Japan (excluding fresh food and energy prices), actually rose from 3.3% in May to 3.4% in June, indicating that fundamental inflation pressures have not completely dissipated.

Harumi Taguchi, Chief Economist at S&P Global Market Intelligence, stated that while the June data met expectations, inflation pressures persist, especially for goods not subsidized by the government.

He expects inflation to continue to moderate, thanks to rice stock releases and summer energy price control measures. However, Taguchi warns:

"If yen depreciation continues, rising import prices may push up overall prices. With real wages declining and economic outlook uncertainty increasing, consumer spending is expected to remain cautious."

Multiple Risks Looming

Krishna Bhimavarapu, an economist at State Street Global Advisors for the Asia-Pacific region, also welcomed the easing of inflation but pointed out that higher tariffs further complicate Japan's economic outlook Japan is facing growth concerns brought about by Trump's tariff policy. According to Global Times, the Japan Broadcasting Corporation (NHK) quoted Trump's remarks on the 16th, stating, "I think it may be done according to the contents of the letter." This means that the U.S. may impose a 25% tariff on imported goods from Japan starting August 1.

Analysis indicates that this has also intensified concerns that higher tariffs could hinder growth. Japan's GDP fell by 0.2% quarter-on-quarter in the first quarter, marking its first contraction in a year, primarily due to a significant decline in exports. Currently, Japan's largest export to the U.S., automobiles, is facing a 25% tariff.

Bhimavarapu predicts an average GDP growth rate of 0.4% in 2025. Bhimavarapu stated:

"Although we expect the Bank of Japan to raise interest rates again this year, our confidence has weakened, so market anxiety over the elections may spill over into higher volatility, which is a key risk for the future."

According to media reports, in the Senate elections held on July 20, the ruling coalition led by Prime Minister Shigeru Ishiba may lose its majority, increasing policy uncertainty.

According to CCTV News, Shigeru Ishiba has set the ruling coalition formed by the Liberal Democratic Party and Komeito, which holds a majority of seats, as the "line of victory or defeat" for this election. Currently, the ruling coalition holds a total of 75 seats in the Senate's non-renewable seats, meaning the two parties must win an additional 50 seats in this election to maintain a majority in the Senate. Recent polls in Japan show that the ruling coalition is facing a severe election situation and is challenged to maintain a majority in the Senate