Japan Inflation Pressure Eases

Japan Inflation Pressure Eases by Adam Rosen last updated on July 21, 2025

According to Commerzbank, the inflationary pressure in Japan is showing signs of easing. Recently, two published surveys showed that inflation will likely drop even further in the next few months.

All of the surveys show that inflation is on a cooldown path in Japan. In reality, the situation is similar as inflation levels are at the lowest level since 2024.

Japanese Yen To Get Weaker

Although our weighted average of expectations, which stands at 3.6%, is still fairly high, a review of historical data reveals that consumers typically overestimate the rate of inflation.

Therefore, the direction it is moving in should be more important to us than the level. The declining expectations can undoubtedly be seen favorably from this angle.

Over the long run, such low levels of inflation would make it tough for the BoJ to go ahead with more rate hikes. After all, low inflation has been a problem for Japan for decades.

In fact, the key reason for negative rates in Japan was to fuel inflation higher. Now, it seems that the inflation is moving lower each month once again.

According to experts, the key driver of inflation was food prices. However, the data shows that the weakening of inflation is mainly due to Japan's manufacturing sector.

Given the current situation of inflation in Japan, the central bank would have to wait a long time before raising the rates again. In fact, the BoJ may even think about rate cuts in the short term to fuel inflation higher.

Also, the lower inflation will translate into a weaker JPY against the US Dollar and other currencies. After all, the market players would ditch the JPY if they see that no more rate hikes are on the cards.

However, new geopolitical developments around the world could spark demand for the Japanese Yen as it is a safe-haven asset.