Will Japan's Prices Rise Again? High Oil Prices and Middle East Risks Shake Households

The atmosphere surrounding Japan's prices is beginning to stir once more.

Japan's Consumer Price Index (CPI) for March, at first glance, might suggest that prices are "still stable." The overall CPI was up 1.5% year-on-year, falling below the Bank of Japan's 2% target for the second consecutive month. These figures do not indicate a resurgence of rapid inflation.

However, the core CPI, excluding fresh food, rose to 1.8%, accelerating for the first time in five months. This increase is driven not so much by strong domestic demand but by concerns over energy prices due to the situation in Iran. If high oil prices persist, they could affect gasoline prices, electricity and gas bills, logistics costs, and food prices. In other words, the current price statistics indicate that "while the numbers appear calm, there are unsettling factors for the future."

The key point this time is that the three price indicators each show different trends.

The overall CPI is at 1.5%, which is below 2%, suggesting that price increases have paused.

The core CPI, excluding fresh food, is at 1.8%, up from 1.6% the previous month, reflecting concerns over energy prices.

Meanwhile, the "core-core CPI," excluding both fresh food and energy, is at 2.4%, down from 2.5% the previous month, marking the lowest growth since October 2024.

These three figures highlight the complexities of Japan's economy. Indicators including energy show upward pressure, while underlying prices excluding energy are slightly slowing. This means Japan's inflation is not simply a case of "a strong economy driving up prices." There is a simultaneous presence of external cost increases and weak domestic consumption.

This situation is particularly challenging for policymakers.

If prices rise due to strong demand, the Bank of Japan could curb overheating by raising interest rates. However, inflation driven by high oil prices and rising import costs cannot be addressed by raising interest rates alone. In fact, raising rates could increase the burden on households and businesses, risking a cooling of the economy.

On the other hand, doing nothing could lead to further yen depreciation and higher import prices. The Bank of Japan also wants to avoid being seen as ignoring price increases. Therefore, the current CPI carries significant implications beyond small numerical changes.

Gasoline Subsidies Suppress Prices, But Limits Are Visible

A notable point in the current price statistics is that government measures have significantly suppressed the numbers.

The Japanese government has introduced subsidies to curb rising fuel prices. A policy was set to keep gasoline prices around 170 yen per liter nationwide, and crude oil reserves were released. Without these measures, gasoline prices could potentially rise to nearly 200 yen.

Energy prices in March fell by 5.7% year-on-year. This is not because there is no pressure from high oil prices, but largely because policies have suppressed the impact on consumer prices. In other words, the current price statistics include "the portion suppressed by the government."

This creates a gap between household perceptions and statistics.

Statistically, energy prices are falling. However, consumers see the price displays at gas stations, price tags at supermarkets, and bills for electricity and gas. Even if subsidies suppress prices, there is lingering anxiety about "how long this will last." If subsidies are reduced, prices could rise accordingly.

Moreover, subsidies come with a fiscal burden. Reports suggest that keeping gasoline prices around 170 yen from nearly 200 yen could cost about 300 billion yen per month. While effective as short-term household support, it is a heavy burden to maintain long-term.

Using fiscal resources to suppress prices could lead to concerns about future tax increases or government bond issuance. Inflation measures might inadvertently create other economic anxieties.

The Reality of "Still High" Prices Felt by Households

Even if the overall CPI remains at 1.5%, many people may not feel that "prices have stabilized."

The reason is that once the prices of essential goods rise, they do not easily fall. Food, daily necessities, dining out, utilities, and transportation costs are directly linked to daily life. Even if the year-on-year growth rate slows, the already high price levels continue to impact households.

For example, the price increase rate of rice has slowed from a temporary surge but continues to rise. According to the article, the inflation rate for rice in March was 6.8%, the lowest growth since January 2024. However, what matters to consumers is not "whether it has become cheaper than before" but "how much the monthly food expenses have increased."

If wages rise sufficiently, price increases can be absorbed. However, the benefits of wage increases vary significantly by industry and company size. While large companies may see wage increases, small businesses, non-regular employees, and pensioners may feel the weight of price increases more heavily.

Such reactions, reflecting the realities of daily life, are also prominent on social media.

"Even if they say the overall CPI is below 2%, payments at the supermarket remain high."
"Imported goods are becoming more expensive due to yen depreciation, and wages are not keeping up."
"If prices are only being suppressed by subsidies, isn't the actual price pressure stronger?"

These voices may seem emotional as a way of interpreting statistics. However, it is precisely this perception that influences household behavior. If consumers believe "prices will rise more in the future," they will become more frugal. If companies believe "raw material costs will still rise," they will continue to raise prices. Prices are influenced not only by numbers but also by people's expectations.

Three Reactions Spreading on Social Media

Reactions on social media regarding Japan's current CPI can be broadly divided into three categories.

The first is the lifestyle protection type of reaction.

These voices express sentiments like "I don't think prices have stabilized," "Food and fuel costs are high," and "There's no room in the household budget." Posts linking yen depreciation to rising import prices are particularly noticeable. Since Japan relies heavily on imports for energy and food, yen depreciation directly affects living costs. Even if the CPI is below 2%, if imported goods and fuel prices remain high, consumer dissatisfaction is unlikely to subside.

The second is the policy distrust type of reaction.

"Aren't they just suppressing the numbers with subsidies?"
"How long can gasoline subsidies continue?"
"Considering the fiscal burden, won't it eventually bounce back to consumers?"

These posts show a certain understanding of government support measures but also question their sustainability. While subsidies can act as a pain reliever, they do not solve the issue of high oil prices. The longer it lasts, the harder it becomes to find an "exit."

The third is the monetary policy type of reaction.

Among market participants and investors, there is a view that "with these numbers, the Bank of Japan might maintain its stance on raising interest rates," and "even if the April meeting results in a hold, the statement might be hawkish." In fact, there is a strong expectation that the Bank of Japan will keep the policy rate at 0.75% at the April 27-28 meeting, but given inflation expectations and yen depreciation risks, they might leave room for additional rate hikes.

These three reactions, while seemingly separate, all stem from the same root: uncertainty about the future.

Households worry about next month's food and utility costs. The government is concerned about how long it can continue subsidies. The market is trying to gauge when the Bank of Japan will raise rates. The current price statistics encapsulate these anxieties into a single figure.

The Shadow of "Bad Inflation" Troubles the Bank of Japan

The most challenging aspect of the current inflation is that it is not necessarily "good inflation."

Good inflation refers to a state where wages rise, consumption increases, and corporate profits grow, resulting in a gradual increase in prices. This wage-price virtuous cycle is what the Bank of Japan has long aimed for.

However, inflation driven by high oil prices is of a different nature. When energy prices rise, corporate costs increase. Transportation costs rise. Electricity bills rise. Companies respond by raising prices, but if consumer incomes do not increase at the same pace, purchasing power declines. As a result, prices rise while the economy weakens.

This includes the risk of so-called stagflation.

Of course, it is not certain that Japan will immediately fall into severe stagflation. However, the Bank of Japan should be wary of the emerging structure. If high energy prices persist, the CPI will rise. But if this reduces households' real incomes, consumption will weaken. From a monetary policy perspective, raising interest rates could curb price expectations, but it could also further cool the economy.

According to Reuters, the Bank of Japan may lower its growth forecast and raise its inflation forecast at the April meeting, indicating a challenging environment where growth is weak and prices are high.

The Market Reads "Hawkish Even If Held Steady"

The financial market does not perceive the current CPI as an extreme surprise. The core CPI of 1.8% matched market expectations, and the figures themselves were within the anticipated range.

Nevertheless, it is important as a material for predicting the Bank of Japan's future stance. The Bank of Japan focuses not only on the current CPI but also on corporate pricing behavior, wage increases, household inflation expectations, exchange rates, and oil prices comprehensively.

According to the Bank of Japan's survey, over 80% of households expect prices to rise in a year. This indicates that price increases are becoming entrenched in people's consciousness. If inflation expectations remain high, companies find it easier to raise prices, and workers are more likely to demand wage increases. This can create a virtuous cycle, but if high energy prices are the main cause, it also burdens households.

In the market, there is a view that even if the Bank of Japan holds rates at the April meeting, it will strongly leave room for future rate hikes. This scenario is described as "held steady but hawkish."

In this case, it could lead to yen depreciation restraint in the foreign exchange market. However, at the same time, rising interest rates would also affect mortgage loans and corporate financing costs. While normalizing monetary policy is necessary, if the timing and speed are wrong, it could burden the economy.

The Government and the Bank of Japan Focus on Different Price Indicators

An interesting aspect of the current price statistics is the possibility that the government and the Bank of Japan may focus on different indicators.

The Bank of Japan is wary of rising energy prices pushing up inflation expectations. If the core CPI rises and households and businesses believe "prices will continue to rise," it becomes a reason to tighten monetary policy.

On the other hand, the government is concerned that high energy prices will erode household purchasing power and cool the economy. Rising prices of essential goods are also politically sensitive. If gasoline prices and electricity bills rise, consumer dissatisfaction increases directly.

In other words, even the same inflation is viewed differently: the Bank of Japan sees it as "price pressure," while the government sees it as a "burden requiring support." This difference in perspective complicates future policy decisions.

If the Bank of Japan becomes inclined to raise rates while the government tries to suppress prices with subsidies, the policy direction becomes complex. This combination of tightening monetary policy and supportive fiscal policy is not necessarily contradictory, but it can make the message difficult to understand.

The Price Issue Won't End as "Overseas News"

The situation in Iran and Middle East risks might sound like distant overseas issues, but they are extremely close to home for Japanese households.

If oil prices rise, gasoline prices rise. If gasoline prices rise, logistics costs rise. If logistics costs rise, the prices of food and daily necessities in supermarkets are affected. If companies' electricity bills rise, the costs are passed on to product and service prices. Overseas wars and geopolitical risks reach the checkout counters in Tokyo and Osaka.

The current CPI has once again highlighted these connections.

Just because the overall CPI is below 2% doesn't mean everything is fine. Nor can we say inflation is over just because the core-core CPI has slowed. In fact, there are pressures obscured by government subsidies that could surface if high oil prices persist.

Three Future Focus Points

There are three key points to watch regarding Japan's future prices.

First, the direction of oil prices. If the Middle East situation drags on, upward pressure on energy prices will continue. Especially if concerns over the Strait of Hormuz increase, it directly impacts Japan's energy security.

Second, the exit strategy of the government's subsidy policy. Continuing subsidies will suppress household burdens but increase fiscal burdens. If stopped, prices will rise, and household dissatisfaction will increase. There is pain in either choice.

Third, the Bank of Japan's decision on rate hikes. Even if a hold is expected at the April meeting, expectations for future rate hikes remain. Depending on whether the Bank of Japan prioritizes inflation expectations or downside economic risks, the financial market's reaction will vary significantly.

The March CPI is not just a monthly statistic. It is an indicator showing that the Japanese economy is caught between energy, households, fiscal policy, monetary policy, and geopolitical risks.

Prices are no longer just a matter of supermarket price tags. They reflect international politics, the oil market, government finances, the Bank of Japan's policy decisions, and the anxieties of consumers expressed on social media.

The March figures do not yet signal a crisis. However, they do not provide reassurance either.

Will Japan's prices rise again, or can they be suppressed through policy measures? The answer depends on future oil prices, government support measures, and the Bank of Japan's actions.

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Source URL

CNBC: Referenced for Japan's March CPI, core CPI, core-core CPI, gasoline subsidies, and outlook before the Bank of Japan meeting.
https://www.cnbc.com/2026/04/24/japan-cpi-march-inflation-iran-war-boj-rate.html

Statistics Bureau of Japan: For official statistics confirmation of Japan's Consumer Price Index.
https://www.stat.go.jp/data/cpi/1.html

Reuters: Referenced for the possibility of the Bank of Japan maintaining a hawkish stance while keeping rates steady at the April meeting, and