Tokyo May 23 2025: Japan’s core inflation accelerated at its fastest annual pace in more than two years in April, data showed on Friday, raising the odds of another interest rate hike by year-end.
The data underscores the Bank of Japan’s predicament of balancing price pressures from persistent food inflation against growth headwinds from U.S. President Donald Trump’s tariffs.
The core consumer price index (CPI), which excludes fresh food but includes oil prices, rose 3.5% in April from a year earlier, exceeding market forecasts for a 3.4% gain and accelerating from a 3.2% increase in March.
It was also the fastest annual pace of growth for the index since the 4.2% rise in January 2023, holding above the central bank’s 2% target for more than three years.
“Underlying inflation remained strong in April despite the slashing of public high school fees,” said Marcel Thieliant, head of Asia-Pacific at Capital Economics.
“Our own view is that the persistent strength in inflation will convince the (BOJ) to hike interest rates yet again in October,” contrary to the dominant market view that U.S. trade tensions will force it to hold fire this year, he said.
Another index stripping away both fuel and fresh food, which is scrutinised by the BOJ as a better gauge of demand-driven price pressure, rose 3.0% in April from a year earlier, the data showed. It accelerated from a 2.9% gain in March.
Food inflation accelerated to 7.0% in April from 6.2% in March in a sign many companies hiked prices at the April start of Japan’s new fiscal year. The price of rice spiked 98.6% last month from a year earlier, while that of chocolate jumped 31%.
Service-sector inflation was more moderate at 1.3% in April, compared with 1.4% in March, suggesting companies were slow in passing on rising labour costs, the data showed.
The BOJ ended a decade-long, massive stimulus programme last year and in January raised short-term interest rates to 0.5% on the view Japan was on the cusp of durably meeting its 2% inflation target.
