On February 21, 2025, owners of a 70-year-old takoyaki restaurant in Tokyo shared a lively moment while cooking. This scene reflects the rich culinary culture of Japan, even as the nation navigates economic changes.
Recently, Japan’s inflation rate dropped to 1.5%, the lowest it’s been since March 2022. This shift marks the end of a 45-month stretch where inflation consistently surpassed the Bank of Japan’s target of 2%.
The core inflation rate, which excludes fresh food, is now at 2%. It had been 2.4% in December. Meanwhile, the “core-core” rate, which strips out both fresh food and energy, fell to 2.6% from 2.9%. The decline is mainly due to lower prices for fresh food, raw meat, and petroleum products.
Goods inflation has decreased to 1.6%—the lowest since August 2021. In contrast, services inflation remains steady at 1.4%. These changes may indicate a shift in consumer behavior, as prices for many essentials are stabilizing.
Looking ahead, the Bank of Japan expects core inflation for fiscal 2026 to be around 1.9%. They also predict consumer price increases might dip below 2% in the first half of 2026 due to stabilizing food prices and government initiatives aimed at reducing living costs.
An interesting note is the ongoing rise in rice prices, which have seen an annual increase of 27.9% for eight consecutive months. To address such concerns, Prime Minister Sanae Takaichi, fresh off a significant election win, has pledged to suspend an 8% food tax for two years—an effort to support citizens facing rising grocery bills.
Despite these promising signs, some economists, like Norihiro Yamaguchi from Oxford Economics, caution that rate hikes are still likely. He points out that fresh food prices remain unstable, while energy costs have dropped following the removal of a fuel tax late last year.
Japan’s economy grew by 0.1% in the last quarter of 2025, narrowly avoiding a recession, but inflation trends still warrant close attention. They highlight the delicate balance the government must maintain among prices, wages, and overall economic health.
As the country adapts, it’s essential to keep an eye on how these developments will affect everyday life in Japan. The evolving economic landscape might give us a clearer picture of where things are headed for consumers, businesses, and even global markets.
For further insight, you can read more about the Bank of Japan’s projections in their official outlook report.
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