Japan’s Core Inflation Slows to 2-Year Low, Complicates BOJ Rate-Hike Timing

Reuters

10:37 JST, February 20, 2026

TOKYO, Feb 20 (Reuters) – Japan’s annual core consumer inflation hit 2.0% in January, marking the slowest pace in two years, data showed on Friday, suggesting weakening cost-push pressure that could complicate the central bank’s decision on how soon to raise interest rates.

The year-on-year increase in the core consumer price index, which excludes volatile fresh food costs, matched a median market forecast and slowed from a 2.4% gain in December.

The data is in line with the Bank of Japan’s projection that core consumer inflation will briefly slow below its 2% target due to the base effect of last year’s spike.

A separate index stripping away both fresh food and fuel prices, which is closely watched by the BOJ as a better indicator of demand-driven inflation, rose 2.6% in January after a 2.9% gain in December. It marked the slowest annual pace of rise since February 2025.

The BOJ ended a decade-long, massive stimulus in 2024 and raised interest rates in several steps including in December on the view Japan was making steady progress in durably achieving its 2% inflation target.

A majority of economists polled by Reuters expect the central bank to raise its key interest rate to 1% from the current 0.75% by end-June.