BOJ raises red flag on food inflation as Japan’s core CPI hits 3.5 per cent

Japan’s central bank is urging caution as food inflation drives consumer prices higher, challenging policymakers’ efforts to sustain stable economic recovery. The Bank of Japan (BOJ), which has long battled deflationary pressures, is now warning of upside risks to inflation due to a global supply crunch, particularly in food commodities.

According to Reuters, Japan’s core Consumer Price Index (CPI) rose 3.5 per cent in April 2025 from a year earlier, marking the fastest increase since January 2023.

The sharp rise was mainly fuelled by a 98.6 per cent surge in rice prices, spotlighting the fragility of food supply chains.

BOJ Governor calls for vigilance amid supply shocks

Addressing a BOJ-hosted conference on Tuesday, Governor Kazuo Ueda said the central bank must scrutinise how food price inflation may influence underlying inflation trends.

“We are facing another round of supply shocks in the form of food price increases,” Ueda said, as quoted by Reuters. While the bank’s baseline view expects these effects to diminish over time, Ueda noted that “underlying inflation is now closer to 2 per cent than a few years ago,” necessitating heightened vigilance.

The governor reiterated that the BOJ is prepared to raise interest rates further if upcoming data strengthens the case for economic recovery aligning with the bank’s forecast. In January 2025, the BOJ raised short-term interest rates to 0.5 per cent, ending its decade-long ultra-loose monetary policy regime.

Japan’s inflation amid global trade tension and US tariffs

Japan’s inflation story is not playing out in isolation. The recent escalation of US tariffs, particularly on Chinese imports has triggered ripple effects across the global economy. These trade frictions have disrupted supply chains, raised input costs, and contributed to a new wave of imported inflation in countries like Japan.

As per Reuters, the BOJ has been forced to downgrade its growth forecasts due to rising trade policy uncertainties, acknowledging that the risks to economic activity and price stability are skewed to the downside for fiscal 2025 and 2026.

Despite the setbacks, BOJ policymakers maintain a cautiously optimistic stance. The central bank continues to expect underlying inflation to gradually approach its 2 per cent target over the second half of its forecast horizon, which runs through fiscal 2027, according to BOJ statements cited by Reuters.

However, the path ahead remains uncertain. With the yen under pressure, import costs rising, and consumer spending showing signs of fatigue, Japan’s economy may struggle to absorb further inflation without hurting domestic demand.

No preconceptions, says BOJ

Governor Ueda has emphasised that the BOJ will assess incoming economic data “without any preconceptions,” given the extremely high uncertainties surrounding both domestic conditions and the global outlook. He also noted the importance of striking the right balance between supporting growth and containing inflationary risks.

“To the extent that incoming data allows us to gain more confidence in the baseline scenario—as economic activity and prices improve—we will adjust the degree of monetary easing as needed,” Ueda said, as per Reuters.

Japan may finally be inching closer to its long-term inflation goal, but the forces driving this shift—soaring food prices and global trade turbulence are far from ideal. While the BOJ has signalled that interest rate hikes are possible, the bank is proceeding with measured caution.

With food inflation surging, US tariffs disrupting global trade, and domestic growth faltering, Japan’s economic policymakers face a complex matrix of risks. And as Governor Ueda’s remarks suggest, the next move may depend less on traditional inflation signals and more on how the global economy unfolds in the coming months.