Japan’s Core Inflation Rises to 3.2% in January, Adding Pressure on Households

TOKYO, Feb 21, 2025 – Japan’s core inflation accelerated to 3.2% year-on-year in January, surpassing market expectations and raising speculation about further interest rate hikes by the Bank of Japan (BoJ) as it continues to scale back its long-standing monetary easing policies.

Rising Prices Drive Inflation Up

According to government data released on Friday, the core Consumer Price Index (CPI)—which excludes fresh food prices—increased from 3.0% in December and exceeded the anticipated 3.1% rise.

• Overall inflation, which includes fresh food, surged to 4.0% in January, up from 3.6% in December and 2.9% in November.
• Cabbage prices tripled due to extreme weather conditions, leading to what the media has dubbed a "cabbage shock."
• Rice prices soared by over 70%, while electricity bills jumped by 18%.
• Gasoline and kerosene costs also expanded despite a narrowing increase in electricity and other household expenses.

Government and BoJ Response

In response to soaring rice prices, the government announced it would release 20% of its emergency rice stockpile—a measure typically reserved for natural disasters—marking the first time since the stockpile’s creation in 1995 that supply chain disruptions have prompted such action.

The Bank of Japan raised interest rates again last month, following its historic rate hike in March—the first in 17 years—as part of its shift away from ultra-loose monetary policies. The BoJ emphasized that rising wages and overall financial stability are supporting this transition.

Concerns Over Trade and Economic Growth

Japan’s economic growth slowed significantly last year, although fourth-quarter GDP figures slightly exceeded expectations. Businesses remain cautious about US President Donald Trump's trade policies, particularly the impact of new tariffs on Japanese exports.

Amid growing concerns, Japan’s trade minister is reportedly arranging a visit to the United States to negotiate exemptions from US tariffs, as the country navigates the challenges posed by inflation, rising interest rates, and global trade uncertainties.