Japan: Inflation recedes in March
Latest reading: Inflation fell to 3.6% in March, following February’s 3.7%. However, this was largely due to one-off government subsidies for electricity and gas; ‘core-core’ inflation—which excludes energy and fresh food prices—ticked up to 2.9% in March from February’s 2.6%, suggesting that price pressures remain strong. The headline inflation figure was above the BOJ’s 2.0% target and was the highest in the G7.
The trend was unchanged, with annual average inflation coming in at February’s 3.0% in March.
Finally, consumer prices rose 0.26% from the previous month in March, swinging from February’s 0.38% fall.
Outlook: Growing optimism that Japan would decisively break with its decades-long deflation has waned in recent weeks. After the Bank of Japan decided to hold interest rates steady on 1 May, its governor, Kazuo Ueda, was unexpectedly pessimistic about the central bank’s ability to reach its 2.0% target. Trump’s tariffs are likely to boost the yen and hit Japanese economic growth, and in turn Japanese inflation, leading the BOJ to say that it was important “to judge whether the outlook will be realized” and to state that risks to prices were tilted to the downside. Still, this year’s strong wage growth should keep headline inflation close to 2% in the coming quarters.