Inflation in Japan's capital has accelerated for a second consecutive month, bolstering expectations that the Bank of Japan will raise interest rates again in the coming months, even though the central bank's policy board is widely anticipated to hold rates steady on Friday.

Data released by Japan's Ministry of Internal Affairs and Communications on Friday showed that Tokyo's core consumer price index, which excludes fresh food, rose 1.9% in July. This reading exceeded the median estimate of 1.8% from a Bloomberg survey of economists. A broader measure that strips out both fresh food and energy costs—a key gauge the BOJ closely monitors as a core inflation indicator—increased by 2%. The overall consumer price index also climbed 2%. The Tokyo CPI is considered a leading indicator for nationwide price trends.

"Given the prolonged situation in the Middle East, I believe prices—especially for energy-related goods—will continue to rise, and the costs for food and other items will also increase further," said Takeshi Minami, chief economist at the Norinchukin Research Institute. "Therefore, from this autumn onward, the inflation rate is likely to remain above 2%."

Other reports released on Friday indicated that Japan's economy demonstrated relative resilience in June, despite ongoing challenges from geopolitical tensions impacting energy procurement and supply chains. Japan's Ministry of Economy, Trade and Industry reported that industrial production rose 1.3% in June compared to the previous month and was up 4.2% year-on-year. The ministry also reported that retail sales saw a marginal 0.5% increase year-on-year but fell 4.1% on a monthly basis.

Collectively, these economic indicators, which were released just hours before the BOJ's policy decision, provide justification for the central bank to continue its path of monetary tightening. The primary question now revolves around the pace at which it will proceed. The BOJ's policy board raised its benchmark interest rate to approximately 1% last month—the highest level since 1995—and is expected to keep it unchanged when the decision is announced later today.