Japan’s inflation cools to 1.5% as BOJ targets remain in play

Japan’s January headline inflation fell to 1.5%, the lowest since March 2022 and ending 45 months of inflation above the BOJ’s 2% target. Core inflation was 2.0% and core-core 2.6%, with falls in fresh food, meat and energy prices driving the slowdown. GDP grew 0.1% in Q4, narrowly avoiding recession. The BOJ upgraded its 2026 outlook to 1.9% core and 2.2% core-core inflation and expects inflation to dip below 2% in early 2026 as food prices stabilise and tax relief/support measures persist. Despite slow price pressure, rate hikes are anticipated, with a June move to about 1% likely after wage data.