On February 21, 2025, the owners of a 70-year-old takoyaki restaurant chat while cooking on the street in Taito Ward, Tokyo.
Richard A. Brooks | AFP | Getty Images
Japan’s headline inflation rate fell to 1.5% in January, the lowest level since March 2022.
The reading ended 45 consecutive months of inflation exceeding the Bank of Japan’s 2% target.
Core inflation, which excludes fresh food prices, fell to 2%, the lowest level since January 2024 and in line with the 2% forecast by economists polled by Reuters. This was down from 2.4% in December.
So-called “core-core” inflation, which excludes fresh food and energy prices, was 2.6%, up from 2.9% in December.
In addition to falling prices for fresh produce, fresh meat, and fresh flowers, a sharp drop in petroleum products contributed to the economic slowdown.
Goods inflation fell to 1.6% from 2.7%, the lowest level since August 2021, while services inflation remained flat at 1.4%.
In January, the Bank of Japan revised upward its inflation forecast for the fiscal year 2026, which starts on April 1. The core inflation rate is 1.9% and the “core-core” inflation rate is 2.2%, revised upward from the October 2025 forecast of 1.8% and 2%, respectively.
The Bank of Japan also predicted that the year-on-year rate of increase in consumer prices is likely to fall below 2% in the first half of 2026 due to stable food prices and the government’s efforts to ease living costs.
Rice inflation slowed for the eighth consecutive month to 27.9%.
These measures include Prime Minister Sanae Takaichi’s campaign promise to suspend the 8% food tax for two years.
Mr. Takaichi won a landslide victory in the February 8 House of Representatives election, and the ruling Liberal Democratic Party won 316 seats, the most for a single party since World War II.
The inflation rate was announced on Monday after Japan’s economy grew 0.1% in the fourth quarter, narrowly avoiding a technical recession.
Norihiro Yamaguchi, chief Japan economist at Oxford Economics, said the Bank of Japan is unlikely to delay raising interest rates despite slowing headline inflation.
He said that while energy costs have fallen after Japan abolished fuel taxes in December, prices for fresh food remain volatile.
As a result, the core-core index, which excludes fresh food and energy, provides a clearer indication of underlying price pressures, easing only gradually from 2.9% to 2.6%.
Yamaguchi expects the Bank of Japan to raise interest rates to 1% at its June meeting after evaluating data from spring wage negotiations.
