Inflation in Japan accelerates sharply, putting pressure on BOJ policy.

• Inflation in Japan rises due to energy and the Iran war.
• BOJ assesses interest rates in light of inflation expectations.
• Cryptocurrencies are observing a global macro impact.

Underlying inflation in Japan gained momentum again in March, rising 1,8% after five months of slowing. The movement was mainly driven by increased energy costs amid geopolitical tensions involving Iran.

The indicator, which excludes fresh food, came in line with market projections and exceeded the 1,6% observed in February. Meanwhile, overall inflation reached 1,5%, still below the Japanese central bank's 2% target for the second consecutive month.

On the other hand, the metric known as "core-core," which excludes food and energy, fell to 2,4%. This is the lowest level since October 2024, indicating a slowdown in less volatile components of the economy.

Faced with energy pressure, the Japanese government is evaluating measures to mitigate the impact on consumers. Among these measures is controlling the price of gasoline, with a planned limit of 170 yen per liter, while projections indicate that the price could reach 200 yen.

To mitigate the effects of the shock, Tokyo also released oil from strategic reserves. Fuel subsidies, in effect since March, helped to bring about a 5,7% drop in energy costs during that period.

Analysts at Credit Agricole highlighted that geopolitical risks are expected to continue influencing prices. "The rise in crude oil prices, driven by geopolitical risks, should complicate price indicator movements," they stated.

If oil prices remain high and subsidies are not expanded, underlying inflation could approach 3% by the end of fiscal year 2026. Even so, the impact on household purchasing power could limit more consistent progress.

In the monetary field, expectations remain high. Recent research indicates that more than 83% of Japanese people expect price increases in the next 12 months, which reinforces the Bank of Japan's vigilance.

“These developments should strengthen the argument for the Bank of Japan to maintain its gradual trajectory of raising interest rates… we still see a strong probability that the Bank of Japan will maintain a trend of further interest rate increases in the medium term,” said analyst Takayasu Kudo.

The central bank's next meeting will take place at the end of April, with expectations that interest rates will remain at 0,75%. The global scenario, including its impact on markets such as cryptocurrencies, remains closely watched as Japanese monetary policy moves forward.