Japan’s Core Inflation Climbs to 3.5%, Highest in Over Two Years

Japan’s core inflation rate rose to 3.5% in April, reaching its highest level since January 2023, according to government data released Friday. The figure, which excludes volatile fresh food prices, was slightly above the expected 3.4% and up from 3.2% in March.

Headline inflation held steady at 3.6% year-over-year, remaining above the Bank of Japan’s 2% target for more than three years. The continued price surge was driven in part by soaring rice prices, with a 5-kilogram bag averaging 4,268 yen ($29.63) as of May 11—up 54 yen from the previous week.

Prime Minister Shigeru Ishiba has vowed to bring rice prices down to below 4,000 yen ($28), even stating his position depends on delivering that promise.

Bank of Japan Governor Kazuo Ueda has suggested the central bank is prepared to raise interest rates if price trends persist, but remains cautious due to the uncertain impact of U.S. tariffs. Japan faces a 10% baseline tariff and a looming 24% “reciprocal” tariff from the U.S., with an additional 25% levy on autos, steel, and aluminum products already in effect.

Economists expect inflationary pressures to ease in the coming months, citing falling crude oil prices, the strengthening yen, and government subsidies for electricity and gas bills. However, some, like Marcel Thieliant of Capital Economics, believe persistent inflation could push the BOJ to raise rates again by October.

Japan’s benchmark Nikkei 225 index saw modest gains, and the yen strengthened 0.15% to 143.80 against the U.S. dollar following the inflation report.

Trade negotiations between Tokyo and Washington remain at a standstill, with Japanese officials urging the removal of all tariffs while resisting any agreements that may compromise national interests.