Japan's core inflation accelerated to 1.8% in March, marking the first increase in five months as geopolitical tensions push energy prices higher. The Iran war has intensified concerns about crude oil costs, prompting the Japanese government to implement fuel subsidies capping gasoline prices at 170 yen per liter, potentially costing 300 billion yen monthly. While headline inflation remains below the Bank of Japan's 2% target at 1.5%, analysts warn that without sustained energy subsidies, core inflation could rise toward 3% by the end of fiscal 2026. The core-core inflation rate, excluding both food and energy, declined to 2.4%, suggesting household purchasing power may face erosion from elevated energy costs. The BOJ faces a complex assessment as it weighs rising inflation expectations against economic slowdown risks from deteriorating terms of trade.
