Japan's core consumer inflation eased to 1.6% in February, falling below the Bank of Japan's 2% target for the first time since March 2022. The decline complicates the central bank's case for further rate hikes.
The drop follows government fuel subsidies aimed at easing household costs, which have dampened CPI readings despite rising import costs from a weak yen and higher oil prices due to Middle East tensions.
A more closely watched measure-core-core CPI, excluding fresh food and fuel-rose 2.5% year-on-year, slightly down from January’s 2.6%. This indicator is key for the BOJ in assessing demand-driven inflation.
The BOJ ended its decade-long stimulus program in 2024 and has raised rates multiple times, citing progress toward sustainable 2% inflation. Governor Kazuo Ueda remains open to further hikes if underlying trends stabilize.
To improve clarity, the BOJ plans to unveil a new inflation metric by summer that excludes one-off policy effects like subsidies-potentially paving the way for future tightening.