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Government data showed the core inflation figure — which strips out prices of fresh food — was in line with the 1.8% expected by economists polled by Reuters, and was higher than the 1.6% seen in February
Headline inflation came in at 1.5%, compared with 1.3% in February, staying below the central bank’s 2% target for a second straight month.
The so-called “core-core” inflation rate, which strips out prices of both fresh food and energy, dipped to 2.4% from February’s 2.5%, marking its lowest level since October 2024.
Japanese Prime Minister Sanae Takaichi has been considering steps to cushion the economic blow from rising fuel costs, including curbing gasoline prices. Tokyo has also released crude from its stockpiles to mitigate an oil shock.
According to Japanese media reports, fuel subsidies have been rolled out since March, with Takaichi saying that she plans to cap pump prices at an average of 170 yen ($1.07) per liter nationwide, warning that gasoline could potentially hit 200 yen per liter.
If gasoline prices were at roughly 200 yen and capped at 170 yen, the subsidy could cost around 300 billion yen per month, according to Finance Minister Satsuki Katayama.
Following government support measures, including ending the provisional gasoline tax, energy costs fell 5.7% in March.
“The rise in crude oil prices driven by geopolitical risks is expected to complicate movements in price indicators,” analysts from Credit Agricole – CIB Japan said in a note following the CPI release.
Should crude oil prices remain elevated and there is no expansion of energy subsidies, core inflation could rise toward 3% by the end of the 2026 fiscal year, analysts added. But higher energy costs would erode household purchasing power, likely keeping core-core inflation below 2%.
“As a result, assessments of inflation would diverge depending on the indicator emphasised. The BOJ is likely to focus on the former, placing weight on rising inflation expectations, while the government, viewing the economic slowdown from deteriorating terms of trade as a risk, would focus on the latter.”
BOJ rate expectations
Bank of America analyst Takayasu Kudo said in note earlier this week that the effects of higher energy prices are likely to become more pronounced starting summer, which will push up both actual inflation and inflation expectations.
“These developments should reinforce the case for the BOJ to maintain its gradual rate-hiking trajectory … we still see a strong likelihood that the BOJ will maintain a bias toward further rate hikes over the medium term.”
The inflation figures come ahead of the BOJ’s meeting on April 27 and 28, where the central bank is expected to hold rates at 0.75%, according to Citi analysts.
Citi said the hold is “likely to be hawkish,” adding that this was due to concerns about further yen depreciation and the risk of falling behind the curve on inflation.
Japan had narrowly avoided a technical recession in the last quarter of 2025, with the country’s economy growing at a revised 0.3% quarter on quarter and 1.3% year-on-year.
On Thursday, Reuters, citing sources familiar with the BOJ’s thinking, reported the central bank was set to cut its growth forecast for the 2026 fiscal year that began in April, and also sharply revise up its inflation forecast for the fiscal year.
Rice inflation, which had made headlines in mid-2025 for exceeding 100%, rose 6.8%, its slowest pace since January 2024.
Japan’s Nikkei 225 climbed 0.6% at open, while yields on the benchmark 10-year Japanese government bonds climbed by about 2 basis points to 2.447%.
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