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.

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.

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

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.

The bruising electoral defeat suffered by Japanese Prime Minister Shigeru Ishiba’s ruling coalition has plunged the country into a state of political uncertainty, creating a significant new dilemma for the Bank of Japan (BOJ).

The Sanseito party tapped into discontent over issues galvanizing voters worldwide: inflation, immigration and a political class dismissed as out of touch.

The success of the Sanseito party could reshape Japan’s domestic and foreign policy. It also aligns Japan with political trends in many other parts of the world.

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.

The Sunday poll to the Upper House of the Japanese Diet is projected to end as a rebuff to the ruling coalition of Liberal Democratic Party-Komeiti

Japanese Prime Minister Shigeru Ishiba's future was unclear Monday after his coalition appeared to have disastrously lost its upper house majority in elections that saw strong gains by a right-wing populist party.