Japan's inflation hits 3% in Feb, keeps alive BOJ rate-hike bets

Japan's core inflation hit 3.0 per cent in February and an index stripping away the effect of fuel rose at the fastest pace in nearly a year, a sign of broadening price pressure that reinforces market expectations of further interest rate hikes.

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The data came in the wake of Bank of Japan (BOJ) Governor Kazuo Ueda's warning, made after its decision to keep interest rates steady on Wednesday, that rising food costs and stronger-than-expected wage growth could push up underlying inflation.

The increase in the core consumer price index (CPI), which strips away the effect of volatile fresh food costs, compared with a median market forecast of a 2.9 per cent gain. That kept core inflation above the BOJ's 2 per cent target for the 35th straight month.

It slowed from the previous month’s 3.2 per cent rise due largely to the resumption of subsidies to curb fuel costs, government data showed on Friday.

The rise in the nationwide core consumer price index, excluding volatile fresh food, followed a 3.2 per cent gain in January. The inflation rate has remained at or above the Bank of Japan's 2 per cent target since April 2022.

A separate index that excludes the effects of both fresh food and fuel costs, closely watched by the BOJ as a broader price trend indicator, rose 2.6 per cent in February from a year earlier after climbing 2.5 per cent in January. It was the fastest year-on-year increase since March 2024, when it rose 2.9 per cent.