Japan's core inflation rate rose to 1.8% in March, remaining below the Bank of Japan's (BOJ) 2% target for the second consecutive month, according to government data released on Friday [1][2]. This marks the first acceleration in core inflation in five months, with the figure aligning with economists' expectations and exceeding February's 1.6% reading [2]. Headline inflation was reported at 1.5% in March, up from 1.3% in February, but also staying under the BOJ's target [2].
The increase in inflation was driven in part by higher energy prices linked to the conflict in the Middle East, though government subsidies played a significant role in cushioning the impact on consumers [1][2]. Japanese Prime Minister Sanae Takaichi has considered measures to curb rising fuel costs, including capping gasoline prices at an average of 170 yen ($1.07) per liter nationwide, with the potential for prices to reach 200 yen per liter [2]. Tokyo has also released crude oil from its stockpiles to mitigate the oil shock [2].
The so-called 'core-core' inflation rate, which excludes both food and energy prices, dipped to 2.4% in March from 2.5% in February, marking its lowest level since October 2024 [2]. Rice inflation, which had previously exceeded 100% in mid-2025, rose 6.8% in March, its slowest pace since January 2024 [2].
Market analysts suggest that the BOJ is likely to maintain its accommodative stance unless inflation consistently exceeds the 2% target [1]. However, Bank of America analyst Takayasu Kudo noted that the effects of higher energy prices are expected to become more pronounced starting in the summer, potentially pushing up both actual inflation and inflation expectations [2]. Citi analysts anticipate the BOJ will hold rates at 0.75% at its upcoming meeting on April 27 and 28, with the hold described as 'likely to be hawkish' due to concerns about yen depreciation and inflation risks [2]. Additionally, Reuters reported that the BOJ is set to cut its growth forecast for the 2026 fiscal year while sharply revising up its inflation forecast [2].
A recent BOJ survey indicated that more than 83% of respondents expect prices to be higher in a year [2]. Japan narrowly avoided a technical recession in the last quarter of 2025, with the economy growing 0.3% quarter-on-quarter and 1.3% year-on-year [2].
CONCLUSION
Japan's core inflation accelerated to 1.8% in March but remains below the BOJ's 2% target, largely due to government subsidies offsetting energy price shocks. While analysts expect the BOJ to maintain its current policy stance in the near term, rising energy costs and inflation expectations could influence future decisions. The market remains attentive to upcoming BOJ meetings and potential policy adjustments as inflationary pressures evolve.