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Cooling Core Inflation May Limit BoJ Rate Hike Expectations
Summary:
Japan’s core inflation remains below the central bank’s target. It is appropriate for the Bank of Japan to maintain its current policy stance at next week’s meeting.
Sell
TradingGBPJPY
EXP
215.405
Entry Price
211.590
TP
217.890
SL
215.610 +0.512 +0.24%
0
Point
Flat
211.590
TP
CLOSING
215.405
Entry Price
217.890
SL
Fundamentals
Data released on Friday showed that Japan’s inflationary pressures eased due to government fuel subsidies offsetting the impact of rising global energy prices driven by tensions involving Iran. Core inflation remained below the Bank of Japan’s 2% target for the second consecutive month.
Core CPI (excluding fresh food) rose 1.8% year-on-year in March, up from 1.6% in February and in line with expectations, but still below the central bank’s target. Meanwhile, the “core-core” CPI (excluding fresh food and energy), which the BoJ closely monitors as a gauge of demand-driven inflation, rose 2.4% year-on-year, down slightly from 2.5% previously and marking the lowest level since October 2025. This indicates weakening underlying inflation momentum.
Headline CPI edged up from 1.3% to 1.5%, suggesting moderate price growth, though still limited in strength.
Structurally, inflation shows clear divergence. On one hand, energy prices are being significantly suppressed by government intervention. The removal of temporary gasoline taxes late last year, combined with ongoing subsidy programs, has effectively reduced fuel costs. Energy prices fell 5.7% year-on-year in March, while gasoline prices declined 5.4%, both continuing to weigh on overall inflation.
On the other hand, cost pressures at the corporate level are rising. The corporate services price index increased from 2.7% to 3.1%, indicating that input costs across the economy are expanding and may gradually pass through to consumers.
Overall, while inflation showed a marginal uptick in March, underlying momentum remains weak. Policy suppression and cost-push factors coexist, creating a “externally soft, internally firm” inflation structure.
The key focus for the BoJ is how rising energy prices driven by Middle East tensions will transmit to broader goods and services inflation. We expect the BoJ to maintain its current stance at next week’s meeting. Under such shocks, the priority should be ensuring liquidity provision rather than tightening policy. Delaying rate hikes is appropriate until conditions in the Strait of Hormuz normalize or clarity emerges on crude oil supply.
Technical Analysis
GBP/JPY remains neutral intraday, with potential for further consolidation or downside below 215.80. However, as long as support at 210.90 holds, the broader outlook remains bullish.
A decisive break above 215.89 would likely resume the larger uptrend, with the next target at the 220.13 retracement level.
Trade Setup
Direction: Sell
Entry: 215.60
Target: 211.59
Stop Loss: 217.89
Valid Until: 2026-05-23 23:55
Support: 214.88, 214.59, 213.99
Resistance: 215.80, 215.90, 217.12
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