Japan’s inflation falls, raising doubts about BOJ rate hikes

Japan’s core inflation declined, rising concerns about the Bank of Japan‘s (BOJ) plans to raise interest rates, Reuters reported on Tuesday.

In April, all three key inflation indicators monitored by the BOJ fell below the two per cent target for the first time since August 2022. The weighted median inflation rate, a key indicator of price broadening, rose just 1.1 per cent year-on-year in April, down from 1.3 per cent in March.

The trimmed mean index, which excludes extreme price fluctuations, also showed a slowdown, rising 1.8 per cent year-on-year in April compared to 2.2 per cent the previous month.

Similarly, a third index measuring the inflation rate with the highest density distribution logged a 1.6 per cent year-on-year increase in April, falling from 1.9 per cent in March.

In March, the central bank ended its eight-year policy of negative interest rates, citing progress towards achieving its two per cent inflation target.

BOJ Governor Kazuo Ueda further indicated that future rate hikes could be expected if inflation continued to accelerate towards the two per cent mark.

Rising raw material costs are likely a significant contributor, raising concerns about the sustainability of inflation without stronger domestic demand. This unexpected cooling could force the BOJ to re-evaluate its timeline for raising interest rates.