Japan Inflation Slows More Than Expected in April

(MENAFN) Japan's core inflation decelerated sharply in April, dropping to its weakest point in more than three years and casting doubt over the Bank of Japan's timeline for its next interest rate increase.

Official government data published Friday showed core consumer prices — stripping out volatile fresh food — climbed just 1.4% year-on-year last month, falling well short of the 1.7% analysts had projected and retreating from the 1.8% recorded in March. The figure represents the softest reading since March 2022.

Headline inflation mirrored that retreat, easing to 1.4% from 1.5% in March — marking a fourth straight month below the central bank's 2% target.

The closely monitored "core-core" index, which filters out both fresh food and energy costs and serves as one of the Bank of Japan's preferred gauges, slid to 1.9% from 2.4% the previous month.

Energy prices contributed significantly to the pullback, falling 3.9% year-on-year in April — an improvement from March's 5.7% decline — even as the ongoing Iran conflict and climbing crude prices applied upward pressure. Government fuel subsidy programs continued to weigh on headline energy costs.

Markets responded swiftly. Tokyo's benchmark Nikkei 225 index opened 0.96% in positive territory, pacing gains across major Asian bourses, while the yen edged lower to 159.03 per US dollar.

The data arrives against a backdrop of sustained currency pressure. Japan has been contending with a persistently weak yen that has inflated import bills and eroded household spending power. Tokyo is estimated to have deployed roughly 10 trillion yen in currency intervention late April through early May, as traders probed policymakers' threshold for further depreciation.

Despite the cooler inflation print, bets on a Bank of Japan rate adjustment have not entirely dissipated. Japan's economy demonstrated unexpected vigor in the first quarter of 2026, expanding at an annualized pace of 2.1% — a figure that surpassed forecasts and suggests underlying economic momentum remains intact.

At its April policy meeting, the Bank of Japan revised its core inflation outlook sharply upward — to 2.8% from 1.9% — attributing the revision to elevated crude oil costs tied to Middle East hostilities and broadening price pass-through by domestic firms.

On the fiscal front, Prime Minister Sanae Takaichi has indicated willingness to pursue a supplementary budget to shield households from mounting energy expenses. Opposition legislators have put forward a more aggressive 3 trillion yen ($18.8 billion) relief package, incorporating extended petrol subsidies alongside direct electricity bill assistance.

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