Japan’s Core Inflation Reaches Peak Not Seen in More Than Two Years

In April 2025, Japan recorded a significant rise in core inflation, reaching 3.5% year-on-year—the highest pace in more than two years. This development comes at a critical time for the Bank of Japan (BoJ), which is striving to strike a delicate balance between curbing inflation and maintaining economic momentum amid increasing global uncertainties, particularly trade tensions with the United States.

Core Inflation Performance

According to data released on Friday, the core Consumer Price Index (CPI)—which includes energy prices but excludes fresh food—rose by 3.5% in April compared to the same month last year. This exceeded market expectations of a 3.4% rise and was higher than the 3.2% increase recorded in March. It marks the fastest annual increase since January 2023, when inflation reached 4.2%.

Monetary Policy Pressures

Core inflation has now remained above the BoJ’s 2% target for more than three consecutive years. In response to sustained price pressures, the central bank ended its decade-long massive stimulus program at the end of 2024 and raised short-term interest rates to 0.5% in January 2025, under the assumption that inflation was moving toward its target in a stable and sustainable manner.

External Challenges and Policy Dilemmas

While the BoJ has expressed readiness to raise interest rates further, external factors—particularly the recent tariffs imposed by U.S. President Donald Trump—have complicated monetary policy decisions. These trade barriers are weighing on Japan’s export-driven economy, creating headwinds for growth and making the timing of any future rate hikes more uncertain.

The latest inflation figures highlight the complex environment facing Japan’s central bank. As inflation continues to exceed its target, the BoJ must carefully navigate between tightening policy to rein in prices and supporting economic stability amid growing global trade tensions. Future decisions on interest rates are likely to depend not only on domestic inflation trends but also on the evolving international economic landscape.