The Japanese Ministry of Internal Affairs and Communications released data on Friday showing that Tokyo's core CPI, excluding fresh food, rose by 3.4% year-on-year, not only higher than March's 2.4%, but also exceeding market forecasts of 3.2%. This is also the first time since July 2023 that Tokyo's core inflation has exceeded 3%, indicating that price pressures may rise across the country.

The price surge this time is mainly driven by the following factors: the government has reduced subsidies for electricity and gas bills, and increased energy related expenditures;

Starting from April 1st of the new fiscal year in Japan, multiple food prices have been raised, further increasing the burden on families; The prices of the service industry are also showing an upward trend, indicating that inflation is gradually spreading to a wider range of sectors.

As a leading indicator of national inflation trends, the continuous rise in Tokyo prices may force the Bank of Japan to reassess its loose stance, "according to an analysis by economists based on market research

The broader core CPI has risen to 3.1%, indicating a shift in the inflation structure

The core indicator of 'excluding fresh food and energy prices', which better reflects potential inflation trends, also shows a significant acceleration. This indicator increased by 3.1% year-on-year in April, with a previous value of 2.2%. This is a medium - to long-term price momentum signal that the Bank of Japan is focusing on.

This change indicates that current inflation is no longer solely driven by costs, but may spread positively to the demand side, especially in non trade sectors such as services, healthcare, and education.

The impact of US tariffs on the external environment poses a dual risk for the Bank of Japan

Although Bank of Japan Governor Kazuo Ueda has repeatedly stated that he will continue to raise interest rates if necessary, the market generally expects the short-term interest rate to remain unchanged at 0.5% at the policy meeting from April 30th to May 1st.

The main reason is the complexity of the external environment, especially the new round of tariff measures implemented by the United States: the US plans to impose higher tariffs on goods from Asian countries, which may suppress global demand;

The Japanese export sector will face pressure, which may affect corporate investment and wage growth; If interest rates are raised rashly, it may suppress the already weak domestic demand and lead to the risk of "stagflation inflation".

The Bank of Japan is expected to lower its economic growth forecast at the meeting and warn of the external impact risks brought by the US tariff escalation, "according to insiders revealed by market research

Editor's viewpoint:

The recent surge in Tokyo CPI once again highlights the increasing pressure of "structural inflation" facing Japan. Unlike the cost based inflation in 2022, this round of price increases is starting to spread to a wider range of sectors with stronger sustainability.

However, the recovery of the Japanese economy is still unstable, and coupled with the tightening of tariff policies in the external environment, it is difficult for the Bank of Japan to raise interest rates rashly. The future monetary policy may enter a transitional stage of 'wait-and-see but inclined towards tightening', which will depend crucially on the performance of wage growth and the transmission capacity of enterprise prices in the coming months.