Japan's Core Inflation Holds Steady at 1.4% in May, Below Expectations

Japan's core inflation rate held steady at 1.4% in May, matching expectations and suggesting that underlying price pressures remained contained despite concerns that higher energy costs could push inflation higher.

The inflation figure — which excludes prices of fresh food — was in line with the 1.4% expected by economists polled by Reuters and unchanged from April.

Headline inflation edged up to 1.5% from 1.4% a month earlier, while the so called "core-core" inflation rate, which strips out prices of fresh food and energy, eased to 1.8% from 1.9% in April.

The inflation data comes as the Bank of Japan raised interest rates to their highest level since 1995 and warned of a possibility that its key "underlying inflation" metric may overshoot its 2% target due to high energy prices.

While households have been relatively shielded from rising prices by government support measures, businesses have faced stronger cost pressures.

Japan's producer price index rose 6.3% in May, marking its fastest pace of increase in more than three years, driven largely by higher energy costs.

"The price pass-through stemming from the rise in crude oil prices has been progressing at a relatively fast pace in business-to-business transactions, which could spread to an increase in consumer prices across a wide range of items," the central bank noted.

The yen has also remained under pressure, trading near the 160-per-dollar level despite intervention by the country's finance ministry and the Bank of Japan's rate increases.

A weak yen would increase inflation, especially in a time where Tokyo needs to use dollars to buy energy to cope with the fallout of the Iran war.

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