Japan¡¯s core inflation accelerated for a third straight month in July, data showed on Friday, but a slowdown in demand-driven price growth could complicate the central bank¡¯s decision on further interest hikes in coming months.

The nationwide core consumer price index (CPI), which excludes fresh food items, rose 2.7% from a year earlier, faster than a 2.6% climb in June. It matched the median market forecast and put the inflation rate at or above the central bank¡¯s 2% target for the 28th straight month.

But the ¡°core core¡± index, which excludes fresh food and energy costs and is closely watched by the Bank of Japan as a key gauge of broader inflation trends, rose 1.9% after increasing 2.2% in June. It dipped below the key 2% line for the first time since September 2022.

¡°The increase in the core CPI reflected a phaseout of government subsidies to curb household utility bills, and with that factor excluded, overall inflation has been slowing,¡± said Masato Koike, senior economist at Sompo Institute Plus.

With utility bill relief reinstated and the yen¡¯s recent rebound now pushing down import costs, core CPI growth ¡°is likely to slow down hereafter,¡± he said.

Inflation data is seen as key to further decisions on rate hikes by the BOJ, which surprised markets in July by raising interest rates to a 15-year high and signalling its readiness to hike borrowing costs further on growing prospects that inflation will durably hit its 2% target.

The BOJ¡¯s hawkish tone led the battered yen to soar and Tokyo stocks to plunge in their biggest single-day rout since 1987¡¯s Black Monday sell-off. Markets have since stabilized.

BOJ Gov. Kazuo Ueda was summoned on Friday to explain the BOJ¡¯s decision in July to raise interest rates and reaffirmed his resolve to raise rates again if inflation stayed on course to sustainably hit the 2% target.

But he also said the central bank would ¡°be highly vigilant to market developments for the time being¡± as financial markets remained unstable.

Data released last week showed Japan¡¯s economy rebounded much faster than expected in the second quarter on robust consumption, backing the case for the central bank to continue its monetary policy tightening campaign.

In a Reuters poll this month, 57% of economists predicted the BOJ would raise borrowing costs again by the end of the year.