Japan Core Inflation Accelerates in March, Complicating BoJ Rate Outlook

Japan’s core consumer inflation rose in March, fueled by persistent food price hikes, adding complexity to the Bank of Japan’s (BoJ) rate trajectory amid ongoing U.S. tariff tensions. According to official data released Friday, the National Consumer Price Index (CPI) rose 3.6% year-over-year, slightly cooling from February’s 3.7% but still in line with market forecasts.

Core CPI, which excludes fresh food, climbed 3.2% annually, up from 3.0% in February. A more refined core measure that strips out both fresh food and energy surged 2.9%, marking a sharp uptick from 2.6% the previous month. This measure, closely watched by the BoJ as a barometer of underlying inflation, remains well above its 2% inflation target.

The data underscores the sticky nature of Japanese inflation, driven largely by higher food prices and anticipated wage growth. Analysts at ING now project the BoJ to delay its next interest rate hike to July instead of May, citing prevailing economic uncertainties and the impact of U.S.-Japan trade negotiations.

Despite the accelerated inflation, the BoJ is expected to hold rates steady at its upcoming April 30–May 1 policy meeting. Last month, the central bank kept rates unchanged but cautioned that inflationary pressures may persist, leaving the door open for potential tightening.

ING analysts highlighted that further BoJ decisions will depend not only on domestic inflation data but also on developments in U.S. tariff policy and trade concessions between the two nations. As inflation remains elevated, market watchers are increasingly anticipating a July rate hike, marking a cautious but deliberate shift in Japan’s ultra-loose monetary policy.