Japan’s Core Inflation Accelerates, BOJ Rate Path Clouded by Tariff Tensions

Japan's consumer price index (CPI) data for March showed inflation remaining sticky, with underlying measures well above the Bank of Japan's target—complicating the central bank's policy outlook as U.S. tariff negotiations add to economic uncertainty.

March CPI Highlights

• Headline CPI: +3.6% YoY (vs. +3.7% in February; consensus +3.6%)

• Core CPI (ex‑fresh food): +3.2% YoY (vs. +3.0% in February; consensus +3.2%)

• Trimmed CPI (ex‑food & energy): +2.9% YoY (vs. +2.6% in February)

All measures remain above the BOJ's 2% inflation target, driven largely by rising food costs and firm wage expectations.

BOJ Policy Outlook

• Rate‑Hike Timing:

  • ING analysts have pushed their first rate‑hike forecast from May to July, expecting the BOJ to hold steady in the April 30-May 1 policy meeting.

• Tariff Uncertainty:

  • “The BOJ will base rate decisions on concessions made between the U.S. and Japan and on the trajectory of U.S. tariff policies,” ING noted, highlighting trade tensions as a key variable.

Market Reaction

• Yields: Japanese government bond yields ticked higher on sticky inflation data.

• Equities: The Nikkei 225 and TOPIX saw slight pullbacks as investors weighed the odds of a July tightening.

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Persistent inflation above target and U.S.‑Japan trade dynamics are set to keep the BOJ in a delicate balancing act—as it weighs the need to temper price pressures against the risks posed by external policy shocks.