Japan’s core inflation rate climbed for the first time in five months, reaching 1.8% in March amid concerns about rising energy costs due to the ongoing conflict in Iran.

According to government statistics, this core inflation measure, which excludes fresh food prices, matched the 1.8% forecast by economists surveyed by Reuters. This was an increase from the 1.6% recorded in February.

Overall inflation was reported at 1.5% in March, up from 1.3% in February, yet it remained below the Bank of Japan’s 2% target for the second consecutive month.

The “core-core” inflation rate, which excludes the costs of both fresh food and energy, fell slightly to 2.4% from February’s 2.5%, hitting its lowest point since October 2024.

Japanese Prime Minister Sanae Takaichi has been considering steps ‌to cushion the economic blow from rising fuel costs, including curbing gasoline prices. Tokyo has also released crude from its stockpiles to mitigate an oil shock.

According to Japanese media reports, fuel subsidies have been rolled out since March, with Takaichi saying that she plans to cap pump prices at an average of 170 yen ($1.07) per liter nationwide, warning that gasoline could potentially hit 200 yen per liter.

If gasoline prices were at roughly 200 yen and capped at 170 yen, the subsidy could cost around 300 billion yen per month, according to Finance Minister Satsuki Katayama.

Following government support measures, including ending the provisional gasoline tax, energy costs fell 5.7% in March.

“The rise in crude oil prices driven by geopolitical risks is expected to complicate movements in price indicators,” analysts from Credit Agricole Corporate and Investment Bank said in a note following the CPI release.

Should crude oil prices remain elevated and there is no expansion of energy subsidies, core inflation could rise toward 3% by the end of the 2026 fiscal year, analysts added. But higher energy costs would erode household purchasing power, likely keeping core-core inflation below 2%.

“As a result, assessments of inflation would diverge depending on the indicator emphasised. The BOJ is likely to focus on the former, placing weight on rising inflation expectations, while the government, viewing the economic slowdown from deteriorating terms of trade as a risk, would focus on the latter.”

A Bank of Japan survey released Monday showed that more than 83% of the respondents expect prices to be higher after one year.

Bank of America analyst Takayasu Kudo said in note earlier this week that the effects of higher energy prices are likely to become more pronounced starting summer, which will push up both actual inflation and inflation expectations.

“These developments should reinforce the case for the BOJ to maintain its gradual rate-hiking trajectory … we still see a strong likelihood that the BOJ will maintain a bias toward further rate hikes over the medium term.”

The inflation figures come ahead of the BOJ’s meeting on April 27 and 28, where the central bank is expected to hold rates at 0.75%, according to Citi analysts.

Citi said the hold is “likely to be hawkish,” adding that this was due to concerns about further yen depreciation and the risk of falling behind the curve on inflation.

Japan had narrowly avoided a technical recession in the last quarter of 2025, with the country’s economy growing at a revised 0.3% quarter on quarter and 1.3% year-on-year.

On Thursday, Reuters, citing sources familiar with the BOJ’s thinking, reported the central bank was set to cut its growth forecast for the 2026 fiscal year that began in ​April, and also sharply revise up its inflation forecast for the fiscal year.

“It has become clear that the government has formally requested the BoJ to achieve a dual mandate – namely, the realisation of both “strong economic growth” and ‘stable inflation.’” CACIB said.

However, bond market could come under pressure, with CACIB analysts saying that Takaichi’s administration will “not hesitate” to undertake fiscal spending to implement decisive policies, including in investments that generate future economic growth.

Yields on the benchmark 10-year Japanese government bonds climbed by about 2 basis points to 2.447%, while Japan’s Nikkei 225 rose 0.6% in early trading.