Japan’s core consumer price index (CPI) — which excludes fresh food but includes energy — rose 1.6% year-on-year in February 2026, marking a third consecutive month of deceleration and undershooting market expectations of 1.7%. The government has introduced measures to ease living costs and stabilize food prices, though higher energy costs driven by the conflict in Iran pose an upside risk to inflation in March.
Despite these pressures, inflation remains comfortably below the Bank of Japan’s 2% target, providing little justification for any imminent shift in monetary policy. At its meeting last week, the BOJ left its policy rate unchanged at 0.75%, in line with forecasts, but signaled a hawkish tilt, citing the need to guard against inflationary pressures arising from rising oil prices. Governor Kazuo Ueda also noted that a rate hike remains on the table if the Iran-related economic slowdown proves to be only temporary.