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Japan’s core inflation accelerated to 1.8% in July from 1.6% in June, strengthening expectations of a Bank of Japan rate hike in September. Rising import costs, a weaker yen and higher energy prices are adding to inflationary pressures, while service inflation is also showing signs of strengthening

Japan’s core consumer inflation accelerated in July, adding to expectations that the Bank of Japan (BOJ) could raise interest rates at its September policy meeting as persistent price pressures strengthen.

The core consumer price index, which excludes volatile fresh food but includes energy costs, increased 1.8% year-on-year in July, up from 1.6% in June and in line with economists’ expectations.

Inflation, however, remained below the BOJ’s 2% target for the seventh consecutive month, partly due to government measures aimed at reducing fuel costs.

Economists expect inflation to pick up further in the coming months as higher raw material and wholesale costs are increasingly passed on to consumers. A weaker yen has also raised import expenses for Japanese companies, while renewed geopolitical tensions involving the US, Israel and Iran could push energy prices higher.