Japan’s Core Inflation Climbs Above Forecasts in May, Reinforcing Rate Hike Expectations
Core consumer inflation in Japan rose more than anticipated in May, hitting its highest level in over two years and strengthening expectations that the Bank of Japan (BOJ) may raise interest rates in the near future.
The national core Consumer Price Index (CPI)—which excludes volatile fresh food prices—rose 3.7% year-on-year, slightly above the 3.6% forecast and up from 3.5% in April. This marked the strongest annual increase since January 2023.
A more refined core measure—excluding both fresh food and energy—also accelerated, climbing to 3.3% in May from 3.0% in April. This reading is closely monitored by the BOJ as a measure of underlying inflation and remains well above its 2% inflation target. It also represents the highest level since January 2024.
Meanwhile, headline CPI, which includes all components, edged down slightly to 3.5% in May from 3.6% the previous month.
The data indicates that inflation in Japan continues to trend upward. Rising wages have boosted consumer spending, and food prices—particularly rice—saw sharp increases due to declining domestic production.
The stronger inflation figures have intensified speculation that the BOJ may raise interest rates as early as July. Although the central bank held rates steady earlier this week, it acknowledged that further tightening is possible if inflationary pressures persist.
In addition, the BOJ announced it would begin scaling back its bond-buying program more gradually starting in 2026, reflecting a cautious approach to tightening monetary policy.
