Japan struggles as inflation surpasses BOJ target for three years

Japan's inflation rate rose to 3.6% year on year in March 2025, continuing a trend that has seen the headline figure exceed the Bank of Japan's (BOJ) target of 2% for three consecutive years. This inflation rate demonstrates a slight decrease from February's 3.7%. The 'core-core' inflation rate, which excludes fresh food and energy prices—a key focus for the BOJ—climbed to 2.9%, an increase from 2.6% the previous month. Moreover, core inflation, which strips out fresh food prices, was recorded at 3.2%, aligning with market expectations but still reflecting an increase from February's 3%. These inflation figures come as Japan is concurrently navigating challenging trade negotiations with the United States. High tariffs on Japanese goods, including a 25% tariff on auto imports imposed effective April 3, 2025, have raised concerns about potential downward pressure on Japan's GDP. President Donald Trump's administration notably deferred reciprocal tariffs of 24% on Japan for three months, though a baseline tariff of 10% remains. Analysts from Nomura have reassessed their outlook for the BOJ, now projecting just one interest rate hike by March 2027 instead of two originally anticipated, forecasting that a pending inflation rate might compel the BOJ to consider tightening monetary policy if the conditions allow for it. Meanwhile, Japan's stock market showed signs of resilience, with the Nikkei 225 index increasing by 1.03% on the back of these inflation results, demonstrating the influence of economic data on market performance amidst trade tensions.