Shop owners of a 70-year-old “takoyaki”, or octopus balls, restaurant chat while cooking along a street in the Taito Ward area of Tokyo on February 21, 2025.
Richard A. Brooks | Afp | Getty Images
Japan’s headline inflation rate fell to 1.5% in January, its lowest level since March 2022.
The reading ended a run of 45 straight months in which inflation had remained above the Bank of Japan’s 2% target.
Core inflation rate, which excludes fresh food prices, eased to 2%, the lowest level since January 2024 and matching the 2% forecast by economists polled by Reuters. It was down from 2.4% in December.
The so-called “core-core” inflation — excluding prices of fresh food and energy — came in at 2.6%, compared with 2.9% in December.
The slowdown was driven by declines in fresh food, raw meat and fresh flower prices, as well as a sharper drop in petroleum products.
Goods inflation fell to 1.6% from 2.7%, its lowest level since August 2021, while services inflation held steady at 1.4%.
In January, the Bank of Japan upgraded its inflation forecasts for fiscal 2026, which begins April 1. It projected core inflation at 1.9% and “core-core” inflation at 2.2%, up from 1.8% and 2%, respectively, in its October 2025 outlook.
The BOJ also wrote in its outlook that the year-over-year rise in consumer prices is likely to fall below 2% in the first half of 2026, as food prices stabilize and government efforts to ease living costs.
Rice inflation slowed for an eighth straight month to 27.9%.
Among those measures is an election pledge by Prime Minister Sanae Takaichi to suspend an 8% food tax for two years.
Takaichi swept to a landslide victory in the Feb. 8 Lower House election, with the ruling Liberal Democratic Party winning 316 seats, the strongest showing by a single party since the end of World War II.
The inflation reading comes after Japan’s economy grew 0.1% in the fourth quarter on Monday, narrowly avoiding a technical recession.
Despite the slowdown in headline inflation, the Bank of Japan is unlikely to delay rate hikes, according to Norihiro Yamaguchi, lead Japan economist at Oxford Economics.
He said fresh-food prices remain volatile, while energy costs fell after Japan scrapped its fuel tax in December.
As a result, the core-core index, which excludes fresh foods and energy, provides a clearer gauge of underlying price pressures, easing only gradually to 2.6% from 2.9%.
Yamaguchi expects the BOJ to raise rates to 1% at its June meeting, after assessing spring wage negotiation data.