Japan's inflation surges to 3.5% in April amid soaring rice prices and trade tensions

Japan’s core inflation accelerated to 3.5 per cent year-on-year in April, the fastest pace in over two years, propelled by a dramatic rise in food prices, particularly rice, and sustained energy costs, according to the official data released on May 23.

The figure, which excludes volatile fresh food prices but includes energy, surpassed market expectations of a 3.4 per cent gain and intensified speculation that the Bank of Japan (BOJ) could raise interest rates again before year-end.

The sharp price increase highlights the ongoing challenge for the BOJ in balancing inflation control with economic growth, especially amid mounting trade uncertainties tied to US President Donald Trump’s tariff measures.

Japan’s central bank has held its main rate steady at 0.5 per cent since ending its decade-long ultra-loose monetary policy in January, but signs of persistent inflation are strengthening calls for further tightening.

Rice prices trigger political fallout

Driving much of April’s inflation was an eye-popping 98.4 per cent year-on-year spike in rice prices—the steepest since records began in 1971—contributing to overall food inflation of 6.5 per cent. The rise has stirred public discontent and added pressure on Prime Minister Shigeru Ishiba’s administration, which is already facing sagging approval ratings and a looming election test in July.

The crisis deepened earlier this week when Agriculture Minister Taku Eto resigned following a controversial remark that he never bought rice due to frequent donations from supporters. The gaffe sparked widespread backlash, leading Ishiba to publicly apologise and pledge to reduce rice prices to below ¥4,000 ($28) per 5-kilogram. As of mid-May, prices had soared to ¥4,268 on average in major supermarkets.

The government is now drawing from emergency rice reserves and considering stimulus measures, including a potential return of subsidies on electricity and gas bills phased out in March. Energy prices jumped 9.3 per cent in April, compounding the inflationary burden on households.

Rate hike in sight

The acceleration in core inflation—above the BOJ’s 2 per cent target for over three years—has renewed pressure on the central bank to act. Another gauge that excludes both fresh food and energy and is closely watched as an indicator of demand-driven inflation rose to 3 per cent in April from 2.9 per cent in March.

The BOJ remains cautious. In its early May meeting, it kept rates unchanged and flagged heightened global uncertainty from Trump’s tariff regime. Japan faces a looming July deadline to respond to a new 24 per cent reciprocal tariff, in addition to a baseline 10 per cent duty and an ongoing 25 per cent levy on cars and metals. Trade talks in Washington continue, but negotiations remain deadlocked.

Economists warn that while inflation is rising, Japan’s economic foundation remains fragile. The economy contracted in Q1 due to weak consumer spending and lacklustre exports, and real wages have declined for three consecutive months despite wage increases.

With inflation eating into household purchasing power and political tensions rising, policymakers must navigate a delicate path.

The BOJ’s next policy meeting is scheduled for June 16–17, where markets will watch closely for any shift in tone as Japan attempts to manage its highest inflation in over two years amidst a volatile global backdrop.

(With inputs from agencies)