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Fitch: Japan Has Emerged from Weak Growth and Deflation, Full-year Interest Rate Seen Rising to 1.5%
Fitch Ratings believes that Japan has emerged from weak growth and deflation, with inflation now becoming more entrenched. As of Mar 2026, the annual core inflation rate excluding ...
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Fitch: Japan Has Emerged from Weak Growth and Deflation, Full-year Interest Rate Seen Rising to 1.5%
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Fitch Ratings believes that Japan has emerged from weak growth and deflation, with inflation now becoming more entrenched. As of Mar 2026, the annual core inflation rate excluding fresh food and energy stood at 2.5%. Inflationary pressures have broadened across various consumer categories, and pipeline pressures have intensified, indicating more persistent inflation dynamics.

Since 2022, Japans overall consumer price inflation has averaged 2.9%, exceeding the Bank of Japans 2% target. The recent moderation in headline inflation mainly reflects the impact of government energy subsidy measures rather than a weakening in underlying price pressures.

Fitch forecasts that the Bank of Japan will continue raising interest rates, with the policy rate expected to increase by 75 bps to 1.5% this year. The real policy rate remains deeply negative at present. As the central bank further tightens policy, interest rates will move toward normalization, thereby exerting upward pressure on the Japanese yen. (ss/w)

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