Source Credit : Portfolio Prints
Japan’s core inflation slowed more sharply than expected in April, falling to its lowest level since March 2022 and potentially weakening the case for an early interest-rate hike by the Bank of Japan.
Core inflation — which excludes fresh food prices — rose 1.4% year-on-year, below both economists’ expectations of 1.7% in a Reuters poll and March’s 1.8% reading.
Headline inflation also eased to 1.4% from 1.5% in March, marking the fourth consecutive month below the Bank of Japan’s 2% target.
Meanwhile, the closely watched “core-core” inflation measure — which strips out both food and energy prices — slowed to 1.9% from 2.4%, signaling broader moderation in underlying price pressures.
Energy prices fell 3.9% in April after declining 5.7% in March, helped in part by government subsidies despite volatility linked to the Iran war.
Japanese markets reacted positively to the data, with the Nikkei 225 rising 0.96% in early trading and outperforming major Asian indexes. The yen also weakened slightly to 159.03 per dollar.
“The inflation figure was a little bit of a surprise, but not too much of a concern,” Andrew McCagg, customer portfolio manager at Nomura Asset Management, said on CNBC’s “Squawk Box Asia.”
McCagg noted that inflation had been expected to dip below 2% due to government fuel subsidies, while additional support measures for school tuition also contributed to the softer-than-expected reading.
However, he warned that the Iran war could reignite inflationary pressures in the months ahead.
“Unlike in other markets, when we talk about inflationary concerns in Japan, it’s still more of a concern that we fall back into deflation rather than inflation getting out of hand,” he added.
Despite the recent slowdown, the Bank of Japan raised its core inflation forecast to 2.8% from 1.9% at its April policy meeting, citing higher crude oil prices tied to tensions in the Middle East and companies continuing to pass rising costs on to consumers.
The latest data also comes after reports that Prime Minister Sanae Takaichi signaled openness to a supplementary budget aimed at easing the burden of rising energy costs.
According to Japanese public broadcaster NHK, opposition lawmakers proposed a 3 trillion yen ($18.8 billion) relief package that includes extending petrol subsidies and providing support for electricity bills.
Japan is also continuing to grapple with a weak yen, with authorities reportedly spending around 10 trillion yen intervening in currency markets at the end of April and the beginning of May. The weaker currency has driven up import costs and further squeezed household purchasing power.
Even so, expectations for a future BOJ rate hike remain alive, as Japan’s economy has shown resilience. The country posted a stronger-than-expected 2.1% annualized expansion in the first quarter of 2026, supported in part by robust exports.
Analysts at DBS Bank said in a Thursday note that the stronger growth outlook could give the Bank of Japan greater confidence to move ahead with tightening policy later this year.
