(MaceNews) – Here are the key Japanese events for the coming week.
Following last week’s majority decision by the Bank of Japan’s board to pause in its gradual rate hike process, CPI data for February is forecast to show core inflation moderated to an annual rate below the bank’s 2% target as energy prices were lowered further by renewed subsidies for electricity and processed food markups continued easing in tandem with fading effects of last year’s domestic rice supply shortages.
After a theatrical performance at the White House aimed at demonstrating close Japan-U.S. diplomatic and economic ties and placating President Trump, Prime Minister Sanae Takaichi has returned to the reality of keeping a renewed spike in energy costs sparked by the Mideast conflict from rekindling cost-led inflation at home and hurting consumer spending and businesses investment.
Among Takaichi’s main weapons is the use of remaining 2022 special funds for lowering fuel costs originally aimed at alleviating the impact of Russia’s invasion of Ukraine that triggered a surge in energy and commodities prices. She is also reviving on-and-off subsidies to ease the burden of electricity charges that first took effect in January 2023 and have been resumed many times to cope with heat waves and freezing winters.
Iran’s blockade of the Strait of Hormuz, the vital shipping route for oil and gas, particularly to Asia, is also set to push up the prices of food and other daily necessities. Japan’s import costs are also rising as the yen remains weak, causing an outflow of national wealth to the world’s largest producers of energy and food.
What does it mean for central bankers in major economies? Bank of Canada Governor Tiff Macklem sees a common “dilemma”— economic weakness combined with rising inflation. “Raising interest rates to slow inflation could further weaken the economy,” he told reporters on Wednesday after the bank’s policymakers held the policy rate at 2.25% after conducting nine rate cuts totaling 275 basis points until October 2025. “Easing interest rates to support growth risks pushing inflation well above target.”
Hours later, Federal Reserve Chair Jerome Powell was asked whether the U.S. economy was headed for stagflation (high inflation combined with stagnant economic growth and high unemployment). He said he would save that term for the 1970s, when the economic conditions were more serious than now, noting the current inflation rate is just above the Fed’s 2% target and the unemployment low for Americans, at 4.4%. The Federal Reserve also left the target range for the federal funds rate unchanged in a range of 3.50% to 3.75% after the two-day meeting that ended on Wednesday.
Bank of Japan Governor Kazuo Ueda told a post-meeting news conference on Thursday (Wednesday evening in North America) that the board members who expressed concerns about upside risks to inflation slightly outnumbered those pointing to downside risks to growth. Asked which risks he is more concerned about, Ueda replied that he needed more time to monitor the effects of the Iran war before personally deciding which is a more urgent risk factor.
The BOJ’s nine-member board decided in an 8 to 1 vote to keep the target for the overnight interest at 0.75% after leaving it unchanged in an 8 to 1 vote at its previous meeting in January and conducting its first rate hike in six meetings in December by raising it by 25 basis points (0.25 percentage point) to a 30-year high in a unanimous vote.
Asked why the board paused again in its gradual normalization process, the governor said, “While we have not fundamentally changed our outlook, the likelihood of that outlook materializing has decreased slightly compared to before, and accordingly, the probability of risk scenarios has increased. In particular, a new risk scenario related to rising crude oil prices has emerged.”
The board repeated its mantra that the bank will continue raising rates if growth and inflation evolve in line with its medium-term outlook, noting that real interest rates are at “significantly low levels.” The board still believes that a positive cycle from income to spending will gradually intensify, backed by the government’s economic stimulus packages and accommodative financial conditions resulting from the BOJ’s large-scale easing in the past.
Looking ahead, Ueda said, “Even if downward pressure on the economy were to emerge and growth rates were to decline, as long as it is temporary and does not significantly affect the underlying path of inflation, I believe that raising interest rates would certainly be possible.”
The BOJ has been lifting the policy rate only gradually toward a more neutral level of at least 1%, noting that many firms are likely to continue raising wages into fiscal 2026 staring in April and uncertainties over U.S. trade rows have eased.
While repeating its long-held view that Japan’s economy should “continue growing moderately,” the BOJ specifically urged a close watch on the impact of heightened tensions in the Middle East on global financial markets that have become “volatile” as well as oil prices that have risen “significantly” since the U.S. and Israeli forces bombed Iran on Feb. 28, killing Supreme Leader Ali Khamenei and many Iranian officials. This triggered retaliatory attacks against Israel, U.S. bases and Gulf states and prompted Tehran to block the Strait of Hormuz.
The BOJ now listed developments in the Middle East and oil prices at the top of the risks to watch while repeating its warnings about the existing risk factors: global growth, inflation that are impacted by trade rows, wage- and price-setting behavior of firms and fluctuations in financial and foreign exchange markets.
Board member Hajime Takata, formerly with Mizuho Securities, called for a rate increase to 1.0% for the second meeting in a row, arguing that the bank’s 2% inflation target has been “largely achieved” and that Japan’s inflation risks are “skewed to the upside due to second-round effects of price rises stemming from overseas developments.” Takata and his colleague Naoki Tamura, who came from the Sumitomo Mitsui banking group, were advocates for an earlier rate hike before December.
The board repeated its projection provided in its quarterly Outlook Report released after the January meeting that in the second half of its projection period (fiscal 2025 through fiscal 2027), underlying CPI inflation and the rate of increase in the core CPI (excluding fresh food) should increase gradually and will be “at a level that is generally consistent with the price stability target.”
The two known hawks, Takata and Tamura, argued against this outlook. Takata repeated his view that both underlying inflation and actual price rises in the consumer price index have largely reached the BOJ’s 2% stability target. For his part, Tamura expects underlying inflation to reach the levels consistent with the 2% target at the April start of fiscal 2026, much earlier than the board’s majority projection that has been held since April 2025.
The bank will update the board’s medium-term inflation and growth forecasts as well as risk analysis in its quarterly Outlook Report to be issued after the next policy meeting on April 27-28. Many economists expect the BOJ to hold interest rates for now while confirming the effects of higher costs of energy and commodities.
– Tuesday, March 24
0830 JST 0830 JST (2330 GMT/1930 EDT Monday, March 23) The Ministry of Internal Affairs and Communications releases February CPI.
Mace News median: total CPI +1.5% y/y (range: +1.3% to +1.5%) vs. Jan +1.5%; core CPI (ex-fresh food) +1.7% y/y (range: +1.6% to +1.8%) vs. Jan +2.0%; core-core CPI (ex-fresh food, energy) +2.7% y/y (range +2.6% to +3.0%) vs. Jan +2.6%
Japan’s consumer inflation continued moderating in the core measure in February as energy prices were pulled down by renewed subsidies for electricity in the first three months of the year aimed at reducing heating costs while processed food price hikes have been easing in tandem with fading effects of domestic rice supply shortages. Energy prices were already down in January after the government scrapped a decades-old gasoline surcharge at the end of December.
The year-on-year increase in the core CPI (excluding fresh food) is forecast to ease to a nearly four-year low of 1.7%, down from 2.0% in January and 2.4% in December. It would be the lowest since 0.8% in March 2022 and below the Bank of Japan’s target to guide inflation to around 2% in the long run.
The annual rate of the total CPI is expected to stand at 1.5% after decelerating sharply to 1.5% in January (the lowest since 1.2% in March 2022) from 2.1% in December. The prices of fresh vegetables and fruits surged in early 2025 on poor crops of 2024 but have now shown a pullback, cooling off the overall inflation rate. Underlying inflation, as measured by the core-core CPI that excludes both fresh food and energy, is seen edging up to 2.7% after easing to 2.6% in January from 2.9% the previous month.
– Tuesday, March 24
1400 JST (0500 GMT/0100 EDT Tuesday, March 24) The Bank of Japan releases the details of its real trade indexes for February, the summary of which was released last week based on nominal data from the Ministry of Finance.
The real export index slipped back a seasonally adjusted 5.8% on the month in February after surging a revised 8.5% in January, led by strong demand for capital goods as well as autos and auto parts that together offset a decline in shipments of information technology goods. Exports to China rebounded sharply and those to the U.S. and EU markets also bounced back.
– Friday, March 27
TBA – The Cabinet Office releases the government’s monthly economic report. It is expected to maintain its overall assessment of the economy while warning about the impact of the Mideast conflict on inflation and growth.
Last month the government continued to predict a modest economic recovery, noting that corporate earnings were solid despite the drag from the protective U.S. trade policy and that inflation was slowing to around the Bank of Japan’s 2% target amid falling energy and easing food prices. It basically maintained its overall assessment, saying the economy was “recovering at a moderate pace, although the effects of the U.S. trade policy remain.”