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Japan Inflation Cools to 1.5%, Testing BOJ’s Next Moves

The slowdown clouds the Bank of Japan’s timeline for further rate increases.

A woman looks at items at a shop in Tokyo, Japan, March 24, 2023. REUTERS/Androniki Christodoulou
A shopper checks out at a cash register in a grocery store in Schaumburg, Ill., Monday, Feb. 9, 2026. (AP Photo/Nam Y. Huh)
A shopper walks past a partially empty dairy section at a grocery store ahead of an expected winter storm spreading across the United States, in Washington, D.C., U.S., January 24, 2026. REUTERS/Nathan Howard/File Photo
A shopper looks at produce at a grocery store Tuesday, Feb. 10, 2026, in Chicago. (AP Photo/Erin Hooley)

Overview

  • Headline consumer prices rose 1.5% year over year in January, the lowest since March 2022 and the first drop below the 2% target after 45 straight months above it.
  • Core inflation excluding fresh food eased to 2.0%, while the core‑core gauge excluding food and energy slowed to 2.6%, reflecting fading base effects from last year’s spike.
  • The BOJ has lifted its fiscal 2026 inflation projections yet expects year‑over‑year consumer prices to dip below 2% in the first half of 2026.
  • The softer readings complicate the pace of further tightening, though a Reuters poll still points to a potential move toward a 1.0% policy rate by end‑June.
  • Policy and growth backdrops could temper prices, with Prime Minister Sanae Takaichi pledging a two‑year suspension of the 8% food tax and Q4 GDP at 0.1%, while hotter U.S. core PCE in December underscores global caution on rate cuts.