Japan’s core inflation dropped below the Bank of Japan’s 2% target for the second consecutive month in March. This decline is attributed to government fuel subsidies and easing food prices, despite ongoing geopolitical tensions that elevate energy costs. The core consumer price index rose 1.8% year-on-year in March, following a 1.6% increase in February.
Underlying inflation, measured by an index excluding fresh food and fuel, rose 2.4% in March, slightly down from 2.5% in February. Over the fiscal year ending in March, core consumer prices increased 2.7%, marking the fourth consecutive year inflation has surpassed the central bank’s target.
Global developments, particularly the conflict involving Iran, have disrupted energy supply routes, driving up crude oil prices and increasing import costs for Japan. Producer prices reflect these pressures, with wholesale inflation rising in March and service-sector prices increasing 3.1% year-on-year.
The Bank of Japan ended its long-standing monetary stimulus in 2024 and has gradually raised interest rates, with the benchmark rate reaching 0.75%. While markets anticipate further rate hikes, uncertainty surrounding geopolitical issues may delay policy actions.
