Japan core inflation falls to over 4-year low in April

• Headline inflation remains below Bank of Japan’s 2% target for 4th straight month

Japan’s core inflation slowed more than expected in April to its lowest level in over four years, weakening expectations of an early interest rate hike by the Bank of Japan.

Core consumer prices, which exclude volatile fresh food, rose 1.4% year-on-year in April, according to official data released Friday, below economists’ expectations of 1.7% and down from 1.8% in March.

The reading marked the lowest level since March 2022.

Headline inflation also eased to 1.4% from 1.5% in March, remaining below the central bank’s 2% target for a fourth consecutive month.

The “core-core” inflation gauge, which excludes both fresh food and energy and is closely watched by the Bank of Japan, fell to 1.9% from 2.4%.

Energy prices declined 3.9% in April from a year earlier, compared with a 5.7% drop in March, as government fuel support measures continued to influence price trends despite pressure from the Iran war and rising crude prices.

Following the data, Japan’s Nikkei 225 index opened 0.96% higher, leading gains across major Asian markets, while the yen weakened slightly to 159.03 against the US dollar.

The softer inflation figures come as Japan continues to struggle with a weak yen, which has raised import costs and weighed on household purchasing power.

Authorities reportedly spent around 10 trillion yen to support the currency at the end of April and beginning of May, as markets tested Tokyo’s tolerance for further yen weakness.

Despite the softer inflation reading, expectations of a Bank of Japan rate hike have not fully faded, as Japan’s economy showed resilience with a stronger-than-expected 2.1% annualized expansion in the first quarter of 2026.

At its April meeting, the Bank of Japan raised its core inflation forecast to 2.8% from 1.9%, citing higher crude oil prices linked to the Middle East conflict and broader cost pass-through by businesses.

Prime Minister Sanae Takaichi has also signaled openness to a supplementary budget to cushion households from rising energy costs, while opposition lawmakers proposed a 3 trillion yen ($18.8 billion) package including extended gasoline subsidies and electricity bill relief.