Japan's core inflation gauge accelerated for a second straight month, strengthening the case for the central bank to raise interest rates again in the near term, with growing market speculation that a move could come as early as September. Data released Friday by the Ministry of Internal Affairs and Communications showed the core consumer price index, excluding fresh food, rose 1.8% year-on-year in July, up from a 1.6% gain in the previous month and matching the median economist estimate.

The index excluding both fresh food and energy—a key core inflation measure closely watched by the Bank of Japan—rose 1.9% year-on-year, while the overall CPI also increased 1.9% annually. The latest uptick was partly driven by energy costs, which climbed 0.6% year-on-year, reversing a slight decline in June. The inflation data lends support to further policy tightening after BOJ Governor Kazuo Ueda signaled several weeks ago that authorities could accelerate the pace of policy normalization.

Despite a rare joint currency intervention by Japanese and U.S. authorities in late July, the yen's persistent weakness continues to pose upside risks to prices, and investors are increasingly confident that the BOJ will proceed with a rate hike next month. The central bank has previously stated that the core CPI excluding fresh food is expected to run "noticeably above" 2% in the second half of the current fiscal year. Economists at Sumitomo Mitsui Nikko Securities forecast the gauge will reach 2.8% in the fourth quarter of this year.