Japan’s inflation hits 3.6% YoY in March to exceed the BOJ’s estimates for three straight years

Japan’s inflation grew 3.6% year-on-year in March, which was lower than the 3.7% seen in February and the 2% target projected by the BOJ. However, the Ministry of Internal Affairs and Communications disclosed that Japan’s consumer price index (core CPI, excl. fresh food) rose to 3.2% YoY in March, up from February’s 3%.

Japan’s core inflation accelerated in March due to persistent rises in food costs, complicating the central bank’s task of balancing mounting price pressures against economic risks from higher U.S. tariffs. The country’s “core-core” inflation rate—which excludes the prices of both fresh food and energy—also increased by 0.3% (30 bps) to 2.9% in March, up from 2.6% in February. 

The data release coincided with ongoing trade negotiations between Japan and the U.S., as President Donald Trump announced “big progress.” Japan faces significant 25% tariffs on auto imports from April 3 and another 25% on steel and aluminum starting March 12.

Trump temporarily suspended his planned 24% “reciprocal” tariffs on Japan for 90 days, maintaining a base 10% tariff.

Japan inflation rate surges by at least 10 basis points MoM 

Japanese March CPI inflation fell to 3.6%yoy from 3.7%. Core (ex food and energy) rose from 1.5%yoy to a still low, but better than it used to be, 1.6%yoy.
(Goldman Sachs chart) pic.twitter.com/TZzTvmVfdH

— Shane Oliver (@ShaneOliverAMP) April 18, 2025

In March, Japan’s Nikkei 225 rose 1.03% to close at 34,730.28 after the country’s inflation grew 3.6% year on year, marking three straight years that the headline inflation rate was above the Bank of Japan’s 2% target and four consecutive months above 3%. The inflation rate was, however, lower than the 3.7% seen in February, a drop of 0.1% (10 bps). 

The data released by the Ministry of Internal Affairs and Communications came ahead of the BOJ’s policy meeting on April 30-May 1, when the bank is set to keep interest rates steady at 0.5% and cut its growth estimates as Trump’s tariffs cloud the economic outlook.

According to the data, households also faced price hikes for a number of consumer goods, including gasoline, hotel bills, and chocolates. Food prices excluding fresh produce rose 6.2% in March, exceeding February’s growth rate of 5.6%. Rice prices spiked 92.5% in March from levels seen a year ago, while services prices rose 1.4% year-on-year. Of the 522 core items, 414 rose, 73 fell, and 35 remained unchanged. The number of core items that rose exceeded the previous month’s figure of 405.

“Food prices will stay elevated for the time being due to global bad weather and higher imported food costs.”

– Takeshi Minami, chief economist at Norinchukin Research Institute.

Non-glutinous rice (excluding Koshihikari) also rose 92.5%, marking the largest growth rate since January 1976. Additionally, hamburgers–whose prices were revised in March due to rising logistics and labor costs–rose 5.7%, and chicken eggs surged by 5.6% due to the impact of avian flu.

Kurihara says Japan needs to pay attention to Trump’s tariffs 

The deputy chief economist at UBS Securities, Tsuyoshi Kurihara, said Japan needed to pay close attention to the downside risk of an economic slowdown and decline in demand due to the effects of tariffs. 

According to Minami, Trump’s tariffs could hurt domestic and overseas economies, which the BOJ must scrutinize. He said there was an increasing chance that the BOJ’s next interest rate hike would be delayed to July or later.

Analysts from Nomura Group noted on April 16 that they would adjust their forecast from expecting two rate hikes to anticipating just one hike by the BOJ between now and March 2027. The Nomura analysts also foresee Japan’s real GDP growing at nearly zero in the third quarter of 2025 due to the tariff impacts.

As per Reuters, the hit to Japan’s consumption from rising living costs will add to headaches for policymakers struggling to quantify the potential damage from higher U.S. tariffs that threaten to derail a modest recovery in the country’s export-reliant economy.

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