The wrong kind of inflation and the effects of the war in Iran complicate the outlook for Japanese interest rates
3-MIN READ3-MIN ListenNicholas SpiroNicholas Spiro is a partner at Lauressa Advisory, a specialist London-based real estate and macroeconomic advisory firm. Published: 4:30pm, 23 Apr 2026In March 2024, the Bank of Japan raised interest rates for the first time since 2007, lifting borrowing costs out of negative territory and calling time on decades of ultra-loose monetary policy as Japan emerged from a long period of entrenched deflation.At the time, inflation had been above the central bank’s 2 per cent target for 22 months. Fast forward to today, and inflationary pressures continue to build. Although headline inflation fell to 1.3 per cent in February, this was because of the resumption of generous government subsidies designed to shield households from the energy shock caused by the war in Iran.A more reliable gauge of inflation, the so-called core-core rate that strips out prices of energy and fresh food, stood at 2.5 per cent. A new measure that excludes temporary factors such as government subsidies was slightly higher.
