Japan’s Core Inflation Rises as Expected in March

Japan's Core Inflation Rises as Expected in March

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In March 2025, Japan's core consumer price index, which excludes fresh food but accounts for energy costs, experienced a 3.2% increase compared to the previous year, rising from a 3% rate in February. This aligns with market expectations and reinforces the Bank of Japan's strategy of incremental interest rate adjustments. However, the growing economic risks, chiefly due to extensive U.S. tariffs, present challenges to the economic outlook. These inflation statistics precede the Bank of Japan's policy meeting next week, where it is anticipated the central bank will maintain its benchmark rate at 0.5% and revise its growth forecasts downward. Core inflation has stayed at or above the Bank of Japan's 2% target for nearly three years, fueled by consistently high food prices and increasing wages. Although additional interest rate hikes are expected later in the year, the uncertainty introduced by U.S. trade policies complicates the trajectory for Japan's export-dependent economy and interest rate strategy.

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