A key inflation indicator tracked by the Bank of Japan remains above its 2% target, solidifying widespread market expectations for an interest rate hike in September. On Tuesday, the central bank reported that its consumer price index, which excludes fresh food and the effects of various government measures, rose 2.3% year-on-year in July. In contrast, the government's core inflation reading released last week, which also strips out fresh food, showed a more moderate increase of just 1.8%.

These figures are part of a set of new price metrics introduced by Governor Kazuo Ueda in March, designed to offer a more nuanced view of underlying inflation trends. The indicators exclude special factors, such as the impact of government subsidies on gasoline and utilities, which often distort the overall CPI data. The latest reading provides further confirmation that underlying price pressures remain robust, as businesses pass on higher input costs to consumers, driven by rising energy prices stemming from the Middle East conflict.

This development also reinforces the central bank's stance that it must remain highly vigilant against upside risks to inflation. Traders currently assign a probability of roughly 80% that the BOJ will raise rates when it announces its next policy decision on September 18. Beyond inflation, the highly unusual joint currency intervention conducted with the United States last month has also fueled speculation that monetary policy adjustments could be imminent. Despite these efforts, the yen continues to hover near the psychologically significant level of 160 per US dollar. US Treasury Secretary Scott Bessent has expressed confidence that policy measures will follow through on this intervention.