Japan’s Inflation Rises as U.S. Tariff Risks Weigh on BOJ Policy

Japan’s core inflation rose in March, driven by persistent food cost increases, complicating the Bank of Japan’s (BOJ) path toward further rate hikes amid growing concerns over U.S. trade tariffs. The core consumer price index (CPI), which excludes volatile fresh food prices but includes energy, climbed 3.2% year-on-year, up from 3% in February and in line with market expectations.

This marks the 36th consecutive month that core inflation has exceeded the BOJ’s 2% target, reflecting sustained pricing pressure as firms pass on higher raw material and labor costs. A separate index excluding both fresh food and fuel, closely tracked by the BOJ for underlying inflation trends, also accelerated to 2.9% from 2.6%.

Consumers are facing broad-based price increases, including surging costs for gasoline, hotel stays, and everyday items like chocolate. Notably, rice prices skyrocketed by 92.5% compared to the same period last year, highlighting the inflationary squeeze on households.

The inflation uptick arrives just ahead of the BOJ’s upcoming policy meeting, where the central bank is expected to keep its interest rate at 0.5% while cutting its growth forecast due to escalating trade tensions. President Donald Trump’s ongoing tariffs, including 25% levies on key Japanese exports such as automobiles, steel, and aluminum, have raised fears of a broader economic slowdown.

Finance Minister Katsunobu Kato expressed “deep concern” over the potential impact on Japan’s and the global economy, warning of heightened uncertainty. While BOJ Governor Kazuo Ueda signaled a willingness to continue gradual rate hikes, he acknowledged the growing risks posed by U.S. trade policy.

Despite a 90-day delay on wider tariffs, market volatility and recession fears could force the BOJ to proceed with caution in its tightening cycle.