Official data released on Friday showed Japan's core inflation rate stood at 1.6% in June, indicating that rising oil prices are beginning to impact the broader economy.

This marks the first increase in Japan's core inflation rate since March. The core rate excludes fresh food prices but includes energy costs.

Headline inflation rose to 1.7% in June, up from 1.5% in May. Meanwhile, the so-called "core-core" inflation rate, which strips out both fresh food and energy prices, fell to 1.7%, its lowest level since August 2022.

Thanks to the cushioning effect of government subsidies, Japan's energy prices in June declined only 0.1% year-on-year, compared to a 2.5% drop in May. Fuel and utility costs were flat, ending a six-month streak of declines.

Despite Japan's subsidy policies aimed at softening the impact of global energy price hikes on consumers, businesses continue to face significant upward pressure on costs due to the price surge. In June, Japan's Producer Price Index rose to 7.1%, reaching its highest level since March 2023.

Japan has been grappling with the challenges of high energy prices, driven by the impact of the Middle East crisis on energy supplies and the yen's continued depreciation at historic lows, which pushes up import costs.

Trade data released on Wednesday showed that due to persistently high costs, the country's oil import value surged over 59% year-on-year. Data from the International Energy Agency indicates that Japan relies on imports to meet more than 87% of its energy needs.

The sustained weakening of the yen has raised market concerns that Japan may face more severe imported inflation. The yen remains near multi-decade lows, trading around 163.82 against the US dollar on Friday. Following the release of the data, Japan's benchmark Nikkei 225 index fell 2.14%.