US-Iran War Claims Another Victim: Japan
Japan’s core inflation rose again in June 2026 as surging oil prices began to ripple through the broader economy, intensifying concerns that the conflict in the Middle East between the US and Iran will continue to drive up living costs and force the Bank of Japan (BOJ) to consider raising interest rates sooner.
Core inflation, which excludes fresh food prices, rose 1.6% year-on-year in June, matching economists’ expectations and marking the first increase since March. Headline inflation rose to 1.7% from 1.5% in May, while core-core inflation, which strips out both fresh food and energy costs, fell to 1.7%, its lowest level since August 2022.
Although the government still provides energy subsidies, the impact of rising oil prices is starting to be felt. Energy prices fell just 0.1% compared to a year earlier, a much smaller decline than the 2.5% drop recorded in May.
Businesses are facing mounting cost pressures. Japan’s Producer Price Index (PPI) surged 7.1% in June, reaching its highest level since March 2023, reflecting increased production costs driven by the energy price spike.
Japan is confronting a double blow. Beyond the energy supply disruptions caused by the Middle East crisis, the yen’s depreciation to multi-decade lows is making imports significantly more expensive. Trade data released this week showed the value of Japan’s crude oil imports soared more than 59% compared to the same period last year. According to the International Energy Agency (IEA), Japan relies on imports for over 87% of its energy needs, leaving it highly vulnerable to global oil price volatility.
On Friday, the yen traded around 163.82 per US dollar, while the Nikkei 225 stock index fell about 2.1% following the inflation data release. The renewed inflationary pressure is fuelling speculation that the Bank of Japan may accelerate interest rate hikes. Reuters previously reported, citing sources familiar with internal BOJ discussions, that the central bank remains wary of inflation risks exceeding market expectations. According to the sources, some BOJ policymakers believe the weak yen and rising fuel prices due to the Iran conflict could push inflation higher more quickly, opening the door for more aggressive rate increases than previously anticipated.