Japan’s core consumer inflation slowed in May and factory activity shrank in June, underlining the growing stress on the economy and keeping the central bank under pressure to expand its radical stimulus programme, possibly as early as next month.

The soft batch of data highlight the challenge the Bank of Japan (BOJ) faces in spurring inflation towards its 2% target, as trade frictions and slowing global growth threaten to derail the country’s economic recovery.

The core consumer price index, which includes oil products but excludes volatile fresh food costs, rose 0.8% in May from a year earlier, government data showed on Friday, matching a median market forecast and slowing from a 0.9% gain in April.

A separate private survey on Friday showed manufacturing activity contracted again in June as new orders fell at the fastest pace in three years, a sign slowing Chinese demand was taking a toll on Japan’s export-reliant economy.

The BOJ kept monetary policy steady on Thursday but signalled its readiness to ramp up stimulus, joining central banks across the world that are shifting towards more easing as the escalating US-China trade war raises fears of a global recession.

“If companies cannot translate rising costs to households, core consumer inflation could slow to around 0.5% to 0.6% in the latter half of this year,” said Mari Iwashita, chief market economist at Daiwa Securities.

“The BOJ may respond to negative developments in overseas economies in July by changing its forward guidance and pledging to keep ultra-low interest rates longer,” she said.

The so-called core-core CPI, which strips away the effects of volatile food and energy costs, was up 0.5% in May from a year earlier, the government data showed.

Japan’s economy expanded by an annualised 2.1% in the first quarter but many analysts predict growth to slow in coming quarters as the U.S.-China tariff row hurts business sentiment. A scheduled sales tax hike in October may also curb consumption, they warn.

Any downturn in business spending could cast doubt on the BOJ’s argument a sustained economic recovery will gradually prod firms to boost prices and wages, helping inflation accelerate.

BOJ Governor Haruhiko Kuroda signalled on Thursday his readiness to ramp up stimulus “without hesitation” if the economy loses momentum, fuelling market expectations of action as early as next month.

“The BOJ may be forced to take action if the yen comes under upward pressure, as European and US central banks are leaning toward more accommodative monetary policies,” said Takeshi Minami, chief economist at Norinchukin Research Institute.

Japan will express concern if currency rates move rapidly in a way that deviates from economic fundamentals, the country’s top currency diplomat said on Friday.

Masatsugu Asakawa, vice finance minister for international affairs, said bond and currency markets have been reacting to heightening market expectations that the US Federal Reserve will cut interest rates as early as next month.

“If the Fed does cut rates in July because it feels doing so would be necessary to prevent a US economic downturn, that’s an appropriate monetary policy decision,” Asakawa told a news conference.

“But if exchange rates are moving rapidly in a way that cannot be explained by economic fundamentals, Japan has no choice but to voice concern,” he said.

Meanwhile, Japan’s Nikkei dropped on Friday as investors awaited cues from U.S.-China trade talks, while oil and mining shares were in demand amid rising geopolitical risks in the Middle East.

The Nikkei share average fell 1% to 21,258.64. The index rose 0.7% for the week and posted a third week of gains thanks to hopes that the US central bank will cut interest rates as early as next month.

Investors’ focus has now shifted to a meeting between US President Donald Trump and China’s President Xi Jinping during a Group of 20 summit in Japan next week, with hopes that they can put negotiations back on track to de-escalate a trade war.

Trump said that he would decide whether to carry out his threat to hit Beijing with tariffs on at least $300 billion in Chinese goods after the meeting.

“If Trump decides not to carry out the threat, the market will likely rise,” said Hiroyuki Ueno, a senior strategist at Sumitomo Mitsui Trust Asset Management.

Meanwhile, tensions between the United States and Iran heightened after Iran shot down a US military drone aircraft in the Gulf region.

The resulting jump in oil prices spurred buying in mining and oil shares. Inpex Corp and Japan Petroleum Exploration jumped 4.4% and 3.7%, respectively while Idemitsu Kosan soared 2.4%.

Reuters