Japan's core inflation cooled to 3.3% in June, coming down from a 29-month high of 3.7% as rice inflation showed signs of easing. The figure — which strips out costs for fresh food — was in line with the 3.3% expected by economists polled by Reuters. Headline inflation in the country dropped to 3.3%, coming down from 3.5% in May.

Japan’s market is rallying, but bond markets are flashing warnings. With rising yields, political uncertainty, and fading trust, the current surge may not hold for long.

Liberal Democratic Party loses control of the Upper House in Japan as right-wing parties gain ground with younger voters amid rising prices and political fatigue.

Japanese government bonds tumbled on Wednesday, sending benchmark yields to near 17-year highs, as traders priced in increased political risks and a hazy outlook for the central bank's policy normalisation path.

The election Sunday is about inflation that has been running between 3.5 percent and 4 percent.

Having done a trade deal with US President Donald Trump, Japan's prime minister will soon announce his resignation, reports said Wednesday, after his latest election debacle left his coalition without a majority now in both houses of parliament.

Japan's core inflation slowed in June but stayed above the central bank's 2% target for well over three years, highlighting lingering price pressures that back market expectations for further interest rate rises.

Rice prices in Japan soared 99.2 percent in June year-on-year, official data showed Friday, piling further pressure on Prime Minister Shigeru Ishiba ahead of elections this weekend.Overall, Japan's core inflation rate slowed to 3.

Japan’s inability to lift inflation is “one of the biggest unsolved challenges in the profession,” said Mark Gertler, a professor of economics at New York University who has studied the issue.

Japan's election outcome may put the central bank in a double bind as prospects of big spending could keep inflation elevated while potentially prolonged political paralysis and a global trade war provide compelling reasons to go slow on rate hikes.