Japan Core Inflation Rises to 1.8% Amid Geopolitical Energy Pressures

Japan's core consumer price index, which excludes fresh food, rose to 1.8% in March, marking the first acceleration in five months. The figure aligned with economist expectations and represents an increase from the 1.6% recorded in February. The uptick is largely attributed to elevated energy prices stemming from the ongoing conflict in Iran. While headline inflation rose to 1.5% from 1.3%, it remains below the Bank of Japan's (BOJ) 2% target for the second consecutive month. In contrast, 'core-core' inflation—which strips out both food and energy—dipped to 2.4% from February's 2.5%, reaching its lowest level since October 2024. Additionally, rice inflation, which saw extreme volatility in mid-2025, slowed to 6.8%, its lowest pace since early 2024. Market analysts suggest these trends support a gradual rate-hiking path for the BOJ. A recent central bank survey indicated that 83% of respondents anticipate higher prices over the next year. Bank of America analysts expect energy costs to further drive inflation expectations starting this summer. The BOJ is scheduled to meet on April 27 and 28. While rates are expected to hold at 0.75%, analysts from Citi anticipate a 'hawkish hold' to combat yen depreciation and avoid falling behind the inflation curve. This development follows a period of economic fragility, as Japan narrowly avoided a technical recession last quarter with revised growth of 0.3% quarter-on-quarter. Reports suggest the BOJ may lower its FY2026 growth forecast while simultaneously raising its inflation outlook.