Overview
A Reuters poll of 16 economists indicates Japan's nationwide core consumer price index - which includes energy but excludes fresh food - likely rose to 1.8% in March from a year earlier. That would represent a modest increase from February's 1.6% and still fall short of the Bank of Japan's 2% inflation target for the second month running.
Drivers
Poll respondents pointed to energy costs as the primary factor pushing inflation higher in March. Analysts linked the recent uptick to the tangible effects of conflict in the Middle East on oil markets. The economists surveyed expect that elevated oil prices, combined with a weaker yen, will continue to feed into consumer prices and could in time encourage the central bank to raise interest rates.
Market and policy context
BOJ Governor Kazuo Ueda, speaking on Thursday in Washington, refrained from indicating that a rate increase was imminent this month. Instead, he emphasized Japan's low real interest rates and the strength of corporate profits, comments that increase the likelihood the central bank will delay any tightening at least until June.
Expert comment
Ippei Ohashi, senior analyst at Shinkin Central Bank Research Institute, said that although measures to ease electricity and gas bills and an expected drop in rice prices are likely to ease some pressure, a sharp rise in gasoline prices is expected to lift the inflation rate.
Dependence on oil imports
The poll also noted Japan's heavy reliance on Middle Eastern supplies for its oil needs, with roughly 95% of its oil sourced from that region, which amplifies sensitivity to geopolitical disruptions.
Data release
The internal affairs ministry is scheduled to publish the official CPI figures at 8:30 a.m. on April 24 (2330 GMT on April 23).
Outlook
Looking ahead, analysts in the poll expect that higher oil prices stemming from the U.S.-Israeli war with Iran and the weak yen will continue to push inflation upward and may eventually prompt the central bank to move toward higher interest rates.