According to a recent article from Bloomberg on June 28th, in the context of rising energy prices and higher-than-expected industrial output growth in May, Tokyo's June inflation has increased slightly, which may prompt the Bank of Japan to consider raising interest rates as early as in July.

(Screenshot Source: Bloomberg)

According to data released by the Japanese Ministry of Internal Affairs on Friday, the core consumer price index (CPI) excluding fresh food in Tokyo rose 2.1% year-on-year in June, exceeding May's 1.9% and the market's expected 2%.

Tokyo's data is a leading indicator of national inflation data to be released in July.

(Screenshot Source: Bloomberg)

Another set of data shows that Japan's industrial output in May increased by 2.8% from April, higher than the general expectation of 2%, because of the full recovery of production lines of auto manufacturers such as Daihatsu Motor Co. after the safety certification scandal that caused partial production stoppages.

The weak yen helped support the price increase in June. The yen has been under pressure, and on Friday during the Asian market, the yen exchange rate once fell to 161 yen per dollar.

"If the yen exchange rate remains at its current level, the Bank of Japan is likely to raise interest rates in July," said Yuichi Kodama, chief economist at Meiji Yasuda Research Institute.

Inflation data is influenced by policy measures in both directions. The government's gradual cancellation of utility subsidies and the introduction of renewable energy taxes provide a bottom line for prices, and the capital's education support plan also plays a role. An inflation index that does not include energy and fresh food has accelerated to 1.8%, reversing the trend after nine consecutive months of deceleration.

Overall, with key indicators returning to the Bank of Japan's target of 2% and new signs of health in manufacturing, Friday's data may continue to push the Bank of Japan towards normalizing monetary policy.

"The hot June CPI report in Tokyo is not the last data to be released before the Bank of Japan's July meeting, but it provides convincing evidence that the Bank of Japan can continue to raise interest rates- this is our basic scenario hypothesis," said Bloomberg economist Taro Kimura.

At this month's policy meeting, the Bank of Japan kept interest rates unchanged while expressing its intention to reduce bond purchases. Some market participants questioned whether the Bank of Japan could launch two major policy initiatives at the same meeting.

Recent comments by Bank of Japan Governor Kazuo Ueda do indicate a possibility of policy adjustments, showing a more open attitude towards raising interest rates.

During the Bank of Japan's monetary policy meeting that ended on June 14th, Ueda revealed that the Bank of Japan "may significantly reduce the amount of government bond purchases" after its policy meeting in July.

Last week, Ueda told parliament that if the data proves necessary, policy interest rates could be raised next month.

These statements have made the market highly concerned about the July policy meeting, and anticipate that it will be a turning point in the Bank of Japan's monetary policy.

According to a survey by Bloomberg earlier this week, one-third of Bank of Japan observers expect an interest rate hike in July.