Data released on Friday shows Japan's core inflation rate fell to 1.4% in April, a larger-than-expected decline that may reduce the likelihood of the Bank of Japan raising interest rates soon. The core inflation rate, which excludes fresh food prices, was lower than the 1.7% forecast by economists in a Reuters poll and also below the 1.8% recorded in March. The overall inflation rate for April was 1.4%, down from 1.5% in March. This marks the fourth consecutive month that Japan's inflation has remained below the Bank of Japan's 2% target. The so-called "core-core" inflation rate, which strips out both fresh food and energy prices and is a key focus for the Bank of Japan, decreased to 1.9% from 2.4% in March. At its April meeting, the Bank of Japan significantly raised its core inflation forecast from 1.9% to 2.8%, citing rising crude oil prices due to conflict in the Middle East and businesses passing on higher costs to consumers. There have been reports that Japanese Prime Minister Sanae Takaichi has indicated openness to using a supplementary budget to address rising energy costs. According to Japan's public broadcaster NHK, opposition lawmakers have proposed a 3 trillion yen (approximately $188 billion) package that includes extending gasoline subsidies and reducing electricity charges. Japan is currently grappling with a weak yen, with reports indicating the country spent 10 trillion yen to intervene in the currency market in late April and early May. The yen's weakness has increased import costs and eroded consumer purchasing power. Despite this, a Bank of Japan interest rate hike may still be on the horizon, as the economy appears stable, with a better-than-expected 2.1% year-on-year growth in the first quarter of 2026. Analysts at DBS Bank noted in a report on Thursday that strong exports are partly driving economic growth, which could bolster the Bank of Japan's confidence to proceed with rate hikes.
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