Core consumer inflation in Japan edged down to a two-year low last month, hiking pressure on the central bank to expand its stimulus program.

Following the effects of the trade war between the U.S. and China on the global economy, as well as a rise in demand uncertain for the second half of this year, all eyes are on central banks around the world as to whether they will introduce further stimulus.

As a recent Reuters poll indicated, expectations that the Bank of Japan will ease further have increased, after committing to expanding stimulus at its last policy meeting should a global slowdown continue and threaten to disrupt economic recovery in Japan.

The core consumer price index, which takes into account oil products but not fresh food prices, increased 0.6% year-on-year in July, equalling the average forecast by economists.

July’s figure matches June’s gain, which marked the slowest pace since July 2017 when the index jumped 0.5%.

The core-core CPI – excluding the effects of volatile food and energy costs – also rose 0.6% in July from the year before.  It is closely monitored by the Bank of Japan to determine how the much the economy’s strength converts into price gains.

However, the Reuters report adds that this data shows the BOJ is behind in its efforts to achieve its 2% inflation goal, as an eight-month export decline due to the U.S. – China trade war, coupled with slowing global demand, impacts Japan’s economy.

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

“Japan is not in deflation at all, but it (inflation) is far below the BOJ’s target.”

Japan’s economy grew an annualised 1.8% in Q2 due to strong household consumption and business investment. However, despite indications of strength on home soil, analysts have cautioned that the timing of a rally in global demand is essential for the growth outlook.

Furthermore, exports fell for the eighth consecutive month in July, signalling the longest run of falls in exports since a 14-month run between October 2015 and November 2016.

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