### Rising Core Inflation in Tokyo: A Two-Year High Signals Potential Rate Hikes - Recent data indicates that core inflation in Tokyo has surged to **3.6%** for the year ending in May 2025, marking the highest level in over two years. This increase is primarily driven by persistent rises in food costs, particularly rice, which has seen prices nearly double. The situation places significant pressure on the Bank of Japan (BoJ) to consider further interest rate hikes to combat inflationary pressures [https://www.channelnewsasia.com/business/core-inflation-japan-capital-hits-3-6-keeps-boj-rate-hike-chance-alive-5159521][https://www.bloomberg.com/news/articles/2025-05-29/tokyo-prices-rising-most-in-two-years-put-pressure-on-pm-ishiba]. ### Breakdown of the Current Economic Situation 1. **Core Inflation Trends**: - Tokyo's core inflation rate has reached **3.6%**, the highest since early 2023, driven by rising food prices [https://www.channelnewsasia.com/business/core-inflation-japan-capital-hits-3-6-keeps-boj-rate-hike-chance-alive-5159521]. 2. **Impact on Monetary Policy**: - The BoJ is under increasing pressure to raise interest rates, with expectations of a potential **25 basis point hike** in July 2025 [https://www.rttnews.com/3543120/yen-rises-on-strong-tokyo-core-inflation-data.aspx]. 3. **Manufacturing Sector Concerns**: - Despite rising inflation, factory output has declined, indicating that manufacturers are struggling with slowing global demand [https://www.channelnewsasia.com/business/core-inflation-japan-capital-hits-2-year-high-keeps-rate-hike-chance-alive-5159521]. ### Supporting Data and Evidence - **Core Inflation Rates**: - April 2025: Core inflation at **3.5%** [https://www.channelnewsasia.com/business/japans-core-inflation-hits-more-2-year-high-keeps-boj-under-pressure-5148386]. - May 2025: Core inflation rises to **3.6%** [https://www.channelnewsasia.com/business/core-inflation-japan-capital-hits-3-6-keeps-boj-rate-hike-chance-alive-5159521]. - **Food Price Increases**: - Rice prices have surged by **98%**, significantly contributing to the inflation rate [https://www.freemalaysiatoday.com/category/business/2025/05/23/japan-core-inflation-accelerates-rice-prices-soar-98]. ### Conclusion: Implications of Rising Inflation - **Inflationary Pressures**: The rise in core inflation to **3.6%** indicates a significant economic challenge for Japan, particularly in balancing growth with inflation control. - **Monetary Policy Adjustments**: The BoJ is likely to respond with interest rate hikes, potentially starting in July 2025, to mitigate inflation while addressing the concerns of a slowing manufacturing sector. - **Future Outlook**: Continued monitoring of food prices and global demand will be crucial as Japan navigates these economic pressures [https://www.channelnewsasia.com/business/japans-core-inflation-hits-more-2-year-high-could-force-year-end-boj-hike-5148386][https://www.hindustantimes.com/world-news/japan-core-inflation-accelerates-rice-prices-soar-98-101747959939137.html].