Japan inflation comes in at 3.6%, surpasses BOJ target for three straight years

Japan’s inflation grew 3.6% year on year in March, marking three straight years that the headline inflation figure is above the Bank of Japan’s 2% target.

The figure was lower than the 3.7% seen in February.

The so called “core-core” inflation rate, which strips out prices of both fresh food and energy and is closely monitored by the BOJ, climbed to 2.9% from 2.6% in the month before.

Core inflation in the country — which strips out prices of fresh food — came in at 3.2%, in line with Reuters’ expectations. This was also compared to the 3% climb in February.

The data release comes as Japan is locked in trade talks with the U.S., with U.S. President Donald Trump writing that “big progress” has been made.

Asia’s second largest economy had been hit with 25% on auto imports effective April 3, and 25% levies on steel and aluminum came into effect on March 12.

Trump, however, has suspended his “reciprocal” tariffs of 24% on Japan for 90 days, leaving a baseline tariff of 10%.

A strong inflation figure would allow the Bank of Japan to increase interest rates and normalize its monetary policy.

However, with tariffs from the U.S. looming, Japan’s GDP could face downward pressure, and constrain the BOJ’s room for rate hikes.

This view was shared by Nomura analysts in a April 16 note, which said that they revise their outlook from two hikes to one hike by the BOJ from now to March 2027. Nomura now expects the BOJ to hike only once, in January 2026.

Nomura expects Japan’s real GDP to grow at “close to zero” on a quarter-on-quarter basis in the July to September 2025 quarter due to the Trump tariffs.

As such, wage growth, which is a lagging indicator, is likely to come under downward pressure around the time of 2026 shunto, or spring wage negotiations, according to Nomura. This would likely make it harder for the BOJ to hike rates during or after the 2026 shunto.