USJPY - Tokyo CPI Bump to 3.4%: What To Expect on the Next Rate Decision?

USJPY - Tokyo CPI Bump to 3.4%: What To Expect on the Next Rate Decision?

As April 2025 draws to an end, the Bank of Japan is in a tight spot in its rate policy decision amidst the on-going tariff tensions with the United States.

• Tokyo Core CPI rose to 3.4% from a 2.4% print higher than the 3.2% forecast.
• Tariff wars adds pressure on the on-going inflation in Japan, barring Yen for renewed strength.
• BoJ to maintain its rate policy by June but an impending rate hike could be anticipated in Q3.

Previously, the 90-day tariff pause brought relief on a global scale, relevant only to those who did not retaliate against US, still, those affected cannot disregard the fact that the 90-day pause is just a “pause” not a halt, which allows uncertainty to linger.

Main Drivers of the 3.4% Inflation Spike

This on-going tariffs added pressure to the already on-going concerns of rising inflation in Japan.

Recently, Tokyo Core CPI y/y rose from 2.4% to 3.4%, a 1% bump on the consumer price index. This is higher than the 3.2% forecast.

Yes, the tariffs are a threat to one’s economy but in this case, Japan is already facing a heightened inflation due to:

• Record wage hikes from Japan’s major corporations during the spring negotiations are fueling domestic demand, especially in services like restaurants, travel, and transportation.
• These service-sector price hikes are sticky and broad-based — a key reason the “core-core” CPI (excluding food & fuel) also jumped.

If CPI remains elevated in the next releases, rate hike expectations could also increase, most especially, if the next prints would surpass BoJ’s inflation target of 2%.

Role of the U.S. Tariff War – Contributing factor, not the root cause

• The U.S. tariff escalation, particularly from Trump’s recent 90-day pause and rhetoric on trade retaliation, adds uncertainty and raises import costs in certain sectors (e.g., electronics, machinery).
• However, these effects are more forward-looking and external-facing — they are not yet the core driver of current domestic inflation.

Instead, the tariff war is more likely to affect Japan’s future growth (via export slowdown and business confidence) rather than being the primary reason for the current CPI surge.

Japanese Index Slows Down With Growing Inflation

With CPI rising higher than the previous and the forecast, the Japanese Index remains in a sideways motion after breaking out of the previous ranges. The on-going motion of the Yen indicates that a hiccup still bars the Japanese Yen

Commitment to Rate Hikes if Inflation Aligns with Projections

Governor Ueda has affirmed that the BOJ will continue to raise interest rates if underlying inflation progresses toward its 2% target, as projected but maintains a cautious and flexible policy stance, ready to adjust interest rates based on economic and price developments. Ueda has indicated that the central bank will scrutinize various data without preconception in setting monetary policy.

USDJPY Still Holding Its Ground After A CPI Bump

The bump on CPI is still not enough pull the gopher to the downside since rate expectations for June rate policy is still on hold. It only indicated that inflation is rising in Japan but BoJ, like the Fed, is still in a “wait and see” stance.

If price breaks out of 143.50 level, a trigger on upside momentum can be anticipated.

Adding also to the pressure on Yen strength is Dollar holding its ground for a potential higher rebound.

If dollar stays inside the previous range where it broke off, this could further increase dollar’s strength for an upside potetial.

What’s Next from the BOJ?

The upcoming April 30–May 1 BOJ policy meeting will be critical as this will bring clarity for the next rate policy decision in the coming months given that inflation surpassed the 2% mark.

A recent Reuters poll showed that only 52% of economists now expect another hike in Q3—down from 70% in March—showing just how cautious the BOJ may remain, despite rising inflation.

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