Japan’s core inflation climbs to 3.5%, highest in more than 2 years

Japan’s core inflation accelerated to 3.5% in April, government data showed Friday, bolstered in part by surging rice prices, as the central bank considers pausing its rate hike posture to assess the impact of U.S. tariffs.

The core inflation figure, which strips out prices for fresh food, was higher than expectations of 3.4%, according to economists polled by Reuters, rising from 3.2% in the previous month and marking the highest level since January 2023.

Headline inflation climbed 3.6% from a year ago, steady from the prior month and staying above the Bank of Japan’s 2% target for more than three years.

Bank of Japan Governor Kazuo Ueda has signaled his stance on intending to raise rates given price trends, while also citing the need to monitor closely the effects of U.S. tariffs.

Rice prices in Japan have doubled over the year. The average price in 1,000 supermarkets across the country reportedly continued to hit record highs, with prices for a 5-kilogram bag of rice hiking by 54 yen from the previous week to 4,268 yen ($29.63) as of May 11.

The country’s prime minister, Shigeru Ishiba, has reportedly pledged to lower rice prices to below 4,000 yen ($28) per 5-kilogram bag, staking his job on the line.

The core inflation is expected to ease in the coming months due to lower crude oil prices and the yen’s appreciation, said Masato Koike, economist at Sompo Institute Plus.

As seen during Trump’s first administration, an oversupply of food stemming from the U.S. tariffs could lead to lower food prices, said Koike, adding that the resumption of government subsidies for electricity and gas bills in the summer will also create downward pressure on inflation.

The Japanese yen strengthened 0.15% to 143.80 against the U.S. dollar following the release, while the benchmark Nikkei 225 rose modestly.

Marcel Thieliant, head of Asia-Pacific at Capital Economics, anticipates the persistent strength in inflation will convince the BOJ to hike interest rates again in October.

Japan currently faces a 10% baseline tariff that U.S. President Donald Trump imposed on most trade partners, alongside a 24% “reciprocal” tariff, which is set to come into effect in July, unless the country manages to strike a deal with the U.S.

The country is also one of the hardest hit by Trump’s 25% levy on auto, steel and aluminum products.

The bilateral negotiation, however, appears to be in a standoff. Japanese senior officials have requested that Washington remove all tariffs on Tokyo, emphasizing that the country will not rush into any deal that puts the country’s interests at risk.