Japan’s core consumer inflation wallowed at a two-year low in July, increasing pressure for the central bank to acknowledge price momentum was slowing and expand its radical stimulus program.

With the global economy hit by the Sino-U.S. tariff war and a pick-up in demand in the second half of the year uncertain, attention has turned to global central banks to gauge their readiness for further stimulus.

Indeed, expectations that the BOJ will ease further have grown, a recent Reuters poll showed, after the central bank at its last policy meeting committed to expanding stimulus if a global slowdown prolongs and threatens to derail Japan’s economic recovery.

The core consumer price index, which includes oil products but excludes fresh food prices, rose 0.6% in July year-on-year, matching economists’ median estimate.

The reading for July matched the previous month’s gain, which was the slowest pace since July 2017 when the index climbed 0.5%.

The so-called core-core CPI, which excludes the effects of volatile food and energy costs, was also up 0.6% in July from a year earlier. It is closely watched by the BOJ to gauge how much the economy’s strength has translated into price gains.

But the data indicates the central bank remains well behind in its efforts to achieve its 2% inflation target as an eight-month long export slump on the back of the U.S.-China trade war and slowing global demand take a toll on the world’s third-largest economy.

“It’s just a matter of time before the BOJ acknowledges that the momentum of a higher inflation rate is being lost,” said Masaaki Kanno, chief economist at Sony Financial Holdings.

“Japan is not in deflation at all, but it (inflation) is far below the BOJ’s target,” adding that the central bank may do so in the December quarter.

Product classes in which prices rose include processed food, electricity and furniture, while those that fell include fresh food and gasoline.

Japan’s economy grew an annualized 1.8% in the second quarter thanks to robust household consumption and business investment. But despite signs of strength at home, analysts have warned the timing of a pick-up in global demand is crucial for the growth outlook.

In July, exports slipped for an eighth month, marking the longest run of declines in exports since a 14-month stretch from October 2015 to November 2016.

Separately, Japanese manufacturers’ confidence turned negative for the first time since April 2013, the Reuters Tankan survey showed.

Last month, the U.S. Federal Reserve cut interest rates for the first time since the financial crisis, although minutes of the meeting showed policymakers were deeply divided over whether to ease.

Source: Reuters