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Japan’s core inflation surged to 3.5% in April, marking its fastest pace in over two years and intensifying speculation of a possible Bank of Japan (BOJ) rate hike by the end of 2025. The rise, exceeding forecasts of 3.4%, highlights continued price pressures driven by persistent food inflation despite economic headwinds from U.S. President Donald Trump’s trade tariffs.
The core consumer price index (CPI), which excludes volatile fresh food prices but includes energy costs, climbed from March’s 3.2%, maintaining levels above the BOJ’s 2% inflation target for over three years. A separate gauge closely monitored by the BOJ—excluding both fresh food and energy—rose 3.0%, slightly up from March’s 2.9%, indicating strong domestic demand-driven price momentum.
Food prices surged notably, with inflation hitting 7.0% in April, up from 6.2% the previous month. Essential items like rice spiked 98.6% year-over-year, while chocolate saw a 31% jump, as companies implemented price hikes at the start of Japan’s new fiscal year. In contrast, service-sector inflation remained moderate at 1.3%, reflecting slow wage pass-through despite rising labor costs.
Analysts remain divided on the BOJ’s next move. While a Reuters poll showed most economists expect rates to hold steady through September, Capital Economics predicts a 25-basis point hike in October, citing resilient underlying inflation.
The BOJ, which ended its ultra-loose monetary policy last year and raised rates to 0.5% in January, now faces a delicate balance. With inflation heating up and external uncertainties from U.S. tariffs mounting, the central bank’s next steps will be critical in shaping Japan’s economic trajectory amid global volatility.
