Japan Hits Highest Core Inflation Growth Since Early 2023, Central Bank Rate Hike on the Rise
Japan's core CPI rose 3.7% year-on-year in May, beating the 3.6% forecast, and the pace has exceeded the Bank of Japan's (BOJ) 2% target for more than three years.
Against this backdrop, the likelihood of the Bank of Japan raising interest rates again is becoming increasingly clear. Recent data show that inflation is not driven solely by fuel or fresh food, but mainly by daily necessities such as rice, processed foods, and consumer services.
Rice prices have doubled since May 2024, while prices of items such as chocolate and convenience foods have risen 27% and 20%, respectively. Services such as restaurants, haircuts and health care have also seen inflation rise, putting more pressure on the BOJ's monetary policy.
Tariff Risks and Impact on Inflation in Japan
The market is in a complicated situation. Despite ending its massive stimulus program late last year and raising short-term interest rates to 0.5% in January, the BOJ remains cautious about global volatility.
This strategy is affected by geopolitical risks, especially when President Trump returns to the White House with new tariffs. Bilateral trade negotiations and changes in import tariffs are making Japan's export growth more fragile.
“Given the uncertainty over U.S. tax policy, the BOJ is closely monitoring developments and maintaining a wait-and-see approach,” said Ryosuke Katagi, an economist at Mizuho Securities. “In 2025, the case for a rate hike remains intact unless inflation data changes significantly.”
Special Inflation Data and Future Forecasts
The inflation index excluding fuel and fresh food increased by 3.3% in May, up from 3.0% in April, marking the fastest increase since January 2024. This more clearly reflects the positive impact from consumption trends and production costs.
Meanwhile, in Tokyo, core inflation forecasts for June also showed a slight easing to 3.3%, but that was still well above the BOJ’s target. Non-fresh food items still rose 7.7% year-on-year, keeping price pressures higher.
Internal Debates and the Risk of a Bullish Price Cycle
There is a growing debate within the BOJ. Minutes from the April-May meeting show that many members are concerned that inflation could run above expectations and could lead to a vicious cycle between wages and prices.
“Current inflation is exceeding expectations. Food prices have risen sharply and are likely to accelerate this year,” said economist Yoshiki Shinke. He predicted that core inflation could fall below 3% in August and could fall below 2% by early 2026, but the pace of decline could be weaker than expected.
Meanwhile, BOJ policymakers hope that rising wages and domestic consumption will push inflation back to its 2% target, rather than relying on a spike in food prices alone. This policy is aimed at avoiding too rapid interest rate hikes, keeping the world's No. 3 economy stable.
But the time frame for determining the real impact of inflation is getting shorter. A Reuters poll found that most economists expect a 25 basis point rate hike as early as 2026. But the latest CPI data suggests that could be accelerated, especially if prices continue to rise and Trump’s tariffs hurt Japanese exports.
Source: https://tintucbitcoin.com/boj-co-the-tang-lai-suat-do-lam-phat-cao/
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