The core gauge, excluding fresh food, climbed 1.6% year-on-year, weaker than the 2.0% in January and market forecasts of 1.7%. Released on 24 March 2026 (today) by the internal affairs ministry, these figures highlight government subsidies curbing energy costs, yet underlying trends persist.
Core Pressures Persist Amid Subsidy Effects
Core inflation excluding fresh food and energy rose 2.5% year-on-year, down slightly from 2.6% in January but still above target. Energy prices plunged 9.1% year-on-year, sharper than January’s 5.2% drop, driven by gasoline down 14.9%, electricity 8.0%, and city gas 8.2%. Food excluding fresh items grew 5.7%, easing for the seventh month, with rice up 17.1% from 27.9% prior. Goods inflation softened to 1.2% from 1.6%, while services held at 1.4%. However, the Bank of Japan stresses a firming wage-price cycle and rising inflation expectations, supported by tight labour markets.
Policy Path Hinges on Wages and Global Risks
Markets now assign lower odds to an April rate hike, as headline softening tempers tightening expectations. Yen weakness fuels upside risks from oil prices and Middle East tensions, potentially reversing subsidy-driven cools. Moreover, sustained wage growth could bolster consumption and signal a policy pivot. Investors eye corporate profits and labour data for clues on durable inflation. This setup favours selective exposure to Japanese exporters benefiting from a weak yen, while hedging currency volatility. Policymakers face a delicate balance: subsidies mask underlying strength, yet global shocks could accelerate hikes.
