Japan’s inflation eases in February below expectations, buoyed by subsidies amid Middle East flare-up.
Japan’s consumer prices rose at a gentler pace in February, painting a picture of economic moderation as government subsidies blunted the sting of energy costs and steadied food prices, even as Middle East conflicts drove up global oil.
The Statistics Bureau announced Tuesday that headline CPI climbed 1.3% year on year, the softest since March 2022 and below the Bank of Japan’s 2% aim, slipping from January’s 1.5%. This extends a four-month easing trend.
Core CPI, excluding fresh food, came in at 1.6%, missing Reuters economists’ 1.7% call and down from 2.0% prior. Core-core, sans energy too, edged to 2.5% from 2.6%. The BOJ eyes 1.9% core and 2.2% core-core for fiscal 2026 from 1 April.
“Inflationary pressures are more entrenched than the weak headline result for February would suggest,” observed Abhijit Surya, senior APAC economist at Capital Economics, adding that the BOJ’s preferred core gauge should hold above target for the foreseeable future.
Utilities dropped 5.5% year on year, electricity 8%, and gas 5.1%, propped by subsidies alongside a new petrol cap at ¥184 per litre and axed gas tax. These counter oil topping $85 per barrel.
Markets welcomed the news. The Nikkei 225 gained over 2%, tracking Asian peers, with the yen flat at 158.59 per dollar.
Yet food remains politically charged. Rice inflation slowed to 17.1% from 27.9%, but soaring staples fuelled LDP poll losses before Prime Minister Sanae Takaichi took office in October. Her two-year 8% food tax pause supports BOJ projections of sub-2% CPI soon.
Last week’s steady 0.75% rates from the BOJ flagged Middle East dangers. “The [Middle East] conflict is an unwelcome surprise,” noted Stefan Angrick of Moody’s Analytics, warning of commodity shocks hitting import-dependent Japan hard. Protracted strife might spur a June or July hike.
Japan’s Q4 GDP nudged up 0.1%, averting recession from Q3’s 0.6%. Core tenacity offsets headline calm, as policymakers juggle growth, currency woes, and external threats.