Tokyo’s inflation rate jumped to 3.5% in April, well above the expectations of economists polled by Bloomberg. This is a notable jump from the previous month’s and is representative of the dramatic economic shift taking place across the region. Additionally, the core inflation rate surged from 1.1% in March to 2.0%. This measure takes out the more volatile components such as energy and food.
While inflation is currently increasing, there are a range of factors that drive inflation. One major factor is the triple jump in rice prices, up a staggering 94% from a year ago. To make a bad situation worse, new U.S. tariffs were imposed at the start of April. Even two years later, we still don’t know the exact economic effects of these tariffs.
As analysts have pointed out, the one-off impact of the reduction in school fees has passed. Because this policy change had already lowered CPI inflation rates in April of last year, that reduction has now ended, which is adding to the upward pressure on the annual inflation rate today.
That’s the view of FX analyst Volkmar Baur at Commerzbank, who furthermore pointed out that this inflation scenario is just what the BoJ wants. The BoJ will meet on May 1 to discuss its own monetary policy. He also pointed out that the economic consequences of recent U.S. tariffs are still highly uncertain.
“The inflation picture therefore looks somewhat better for the Bank of Japan, which will meet next week on 1 May to make its next monetary policy decision. However, uncertainties remain high at the moment. US tariffs were raised sharply at the beginning of April, and it is not yet possible to assess their full economic impact. Therefore, I still believe that it will be too early for the Bank of Japan to raise interest rates again next week and that the next rate hike is more likely in July.” – Volkmar Baur
The rise in the inflation rate underscores a shift in consumer prices in Tokyo, highlighting how external factors and previous domestic policies can significantly influence economic conditions. Economists had forecast a less dramatic jump in consumer prices. Changes in expectations were brought on by a new economic reality, beginning with skyrocketing commodity prices and ending with some key subsidies.
The analysis indicates that inflation just keeps getting worse. The BoJ might be reluctant to increase interest rates at this point. The bank’s decisions will be closely watched by markets, especially given the complex interplay of local and international economic pressures.