Japan’s Inflation Hits 3.5% as Food Prices Soar and Tariff Risks Loom

Japan’s core inflation rose to 3.5% in April, the highest since early 2023, fueled by rising domestic prices and lingering trade tensions with the U.S.

The increase surpasses forecasts and keeps inflation well above the Bank of Japan’s 2% target, complicating interest rate decisions.

A key driver has been the surge in rice prices, which hit a record 4,268 yen ($28) for a 5kg bag. Despite releasing stockpiles, only 41% of government-auctioned rice has reached wholesalers. Prime Minister Shigeru Ishiba vowed to bring prices below 4,000 yen.

The U.S. is set to impose a 24% reciprocal tariff in July, escalating pressure on Japan’s economy unless a deal is reached. Earlier tariffs on steel, autos, and aluminum continue to weigh on trade.

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Some economists expect inflation to ease with a stronger yen and energy subsidies, but others, like Marcel Thieliant of Capital Economics, believe the BOJ could hike rates in October.

Markets showed muted reaction: the yen ticked up to 143.80, equities rose slightly, and bond yields dipped following the data.

Alexander Stefanov