A customer checks vegetables and other groceries at a supermarket in Tokyo, June 20, 2025.
Kazuhiro Nogi | AFP | Getty Images
Japan’s core inflation rate accelerated for the first time in five months, rising to 1.8% in March as concerns over energy prices heightened due to the Iran war.
Core inflation, which excludes fresh food prices, was in line with economists’ forecasts in a Reuters poll of 1.8% and higher than February’s 1.6%, government data showed.
Headline inflation was 1.5%, down from 1.3% in February, falling below the central bank’s 2% target for the second consecutive month.
So-called “core-core” inflation, which excludes fresh food and energy prices, fell to 2.4% from 2.5% in February, the lowest level since October 2024.
Prime Minister Sanae Takaichi is considering measures to soften the economic blow from soaring fuel costs, including curbing gasoline prices. Tokyo also released its crude oil reserves to alleviate the oil shock.
Fuel subsidies have been in place since March, and Takaichi warned that gasoline prices could reach 200 yen per liter, according to Japanese media reports, and said he plans to cap pump prices nationwide at an average of 170 yen ($1.07) per liter.
According to Finance Minister Satsuki Katayama, if the price of gasoline is about 200 yen and the upper limit is 170 yen, the subsidy could cost about 300 billion yen per month.
Energy costs fell 5.7% in March due to government support measures such as the abolition of the interim gasoline tax.
“A rise in oil prices due to geopolitical risks is expected to complicate movements in price indicators,” analysts at Credit Agricole Corporate and Investment Bank said in a note after the CPI was released.
Analysts added that core inflation could rise towards 3% by the end of fiscal 2026 if oil prices remain high and there is no expansion in energy subsidies. However, rising energy costs will erode household purchasing power, and core inflation is likely to remain below 2%.
“As a result, inflation evaluations will likely differ depending on the indicators they emphasize. The Bank of Japan will focus on the former, focusing on rising inflation expectations, while the government will focus on the latter, citing the risk of an economic slowdown due to worsening terms of trade.”
Bank of Japan interest rate forecast
More than 83% of respondents expect prices to rise a year from now, according to a Bank of Japan survey released on Monday.
Bank of America analyst Takayasu Kudo said in a note earlier this week that the effects of higher energy prices are likely to become more pronounced starting in the summer, pushing up both actual and inflation expectations.
“These developments should strengthen the BOJ’s case for maintaining a gradual rate hike trajectory…We still see a high likelihood that the BOJ will maintain its bias towards further rate hikes over the medium term.”
Citi analysts said the inflation data will be released ahead of the Bank of Japan’s April 27-28 meeting, where the central bank is expected to keep interest rates unchanged at 0.75%.
Citi said the hold was “likely to be hawkish”, adding that this was due to concerns about further yen weakness and the risk of falling behind higher inflation.
Japan narrowly avoided a technological recession in the final quarter of 2025, with the country’s economic growth rate at 0.3% (revised) quarter-on-quarter and 1.3% year-on-year.
On Thursday, Reuters reported, citing sources familiar with the Bank of Japan’s thinking, that the Bank of Japan has revised down its growth forecast for the 2026 fiscal year, which began in April, and is also planning to significantly revise its inflation forecast for that fiscal year upward.
CACIB said, “It has become clear that the government has formally requested the Bank of Japan to accomplish its dual mission of achieving both “strong economic growth” and “stable inflation.”
However, the bond market could come under pressure, and CACIB analysts say the Takaichi government will “not hesitate” to use fiscal spending to implement decisive policies, including investments that will generate future economic growth.
Benchmark 10 year yield Japanese government bonds rose about 2 basis points to 2.447%, but Japan’s Nikkei Stock Average It rose 0.6% in early trading.
