Inflation in Japan accelerates after five months as war with Iran deepens energy concerns
Customers check out vegetables and other foods at a supermarket in Tokyo on June 20, 2025.
Kazuhiro Nogi Afp | Getty Images
Inflation in Japan rose for the first time in five months, rising to 1.8% in March as Iran fueled higher energy prices that pushed up consumer inflation.
Government data showed the inflation figure – which excludes fresh food prices – 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 bank’s 2% target for the second consecutive month.
The so-called “core-core” inflation rate, which excludes the prices of both food and energy, fell to 2.4% from 2.5% in February, marking its lowest level since October 2024.
Japanese Prime Minister Sanae Takaichi has been mulling measures to cushion the economic blow from rising fuel costs, including capping fuel prices. Tokyo also pulled crude from its reserves to cushion the oil shock.
According to Japanese media reports, fuel subsidies have been implemented since March, with Takaichi saying he plans to raise prices by an average of 170 yen ($1.07) per liter, warning that gasoline could hit 200 yen a liter.
If gasoline prices were around 200 yen and reached 170 yen, the subsidy would cost about 300 billion yen a month, according to Finance Minister Satsuki Katayama.
Following government support measures, energy costs decreased by 5.7%.
A Bank of Japan survey released on Monday showed that more than 83% of respondents expect prices to be higher in one year.
Bank of America analyst Takayasu Kudo said earlier this week that the effects of higher energy prices may be more pronounced from the summer, which will raise both inflation and inflation expectations.
“These developments should strengthen the case for the BOJ to maintain its dovish approach … we still see a strong possibility that the BOJ will end up biasing interest rates over the medium term.”
The inflation figures come ahead of the BOJ 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 holding was “potentially hawkish,” adding that this was due to concerns about the yen’s depreciation and the risk of falling behind the inflation curve.
Japan narrowly avoided recession in the last quarter of 2025, with the country’s economy growing at an updated 0.3% quarter-on-quarter and 1.3% year-on-year.
On Thursday, Reuters, citing sources familiar with the BOJ’s thinking, reported that the central bank will cut its growth forecast for the 2026 fiscal year that began in April, and also significantly revise its inflation forecast for the fiscal year.
Rice inflation, which had been in the headlines in mid-2025 at over 100%, rose 6.8%, its slowest pace since January 2024.
Japanese Nikkei 225 rose 0.6% at the open, while the benchmark 10-year yield Japanese government bonds rose almost 2 points to 2.447%.
