Core inflation in Japan’s capital Tokyo rose to a two-year high in April, driven by rising food prices and reduced government subsidies for utilities, highlighting the Bank of Japan’s challenge in navigating economic risks posed by higher U.S. tariffs and persistent domestic inflation.
The Tokyo core consumer price index, which excludes fresh food, increased 3.4% year-on-year in April, up from 2.4% in March and exceeding market expectations of 3.2%. This marked the fastest pace of inflation since April 2023.
The increase comes ahead of the Bank of Japan’s policy meeting scheduled for April 30–May 1, where the central bank is expected to hold its short-term interest rate at 0.5%. The central bank has been gradually moving away from its decade-long ultra-easy monetary stance and is closely monitoring inflation trends and global economic risks.
The April inflation surge reflects the end of certain utility subsidies and a fresh round of food price hikes implemented at the beginning of Japan’s financial year. Education subsidies introduced in Tokyo last year had previously helped suppress the index.
A broader measure of inflation, which excludes both fresh food and energy costs, rose 3.1% in April, accelerating from a 2.2% increase in March. This index is closely watched by the central bank as a key gauge of underlying price trends.
While the Bank of Japan has signaled openness to further interest rate increases, uncertainty over the impact of U.S. trade policy is likely to delay any immediate moves. In response to economic pressure, the Japanese government on Friday announced an emergency economic package, including the reinstatement of utility bill subsidies, which analysts say could reduce core inflation by up to 0.4 percentage points.
The central bank is expected to proceed cautiously, balancing the need to manage inflation with concerns about weakening global demand and domestic growth.
