Japan’s headline inflation rose 3.7% year on year in February, easing from a two-year high of 4% seen in January.

Core inflation — which excludes prices of fresh food — was at 3%, lower than January’s figure of 3.2%. However, the core inflation figure was higher with expectations of 2.9% from economists polled by Reuters.

The inflation figures come shortly after the Bank of Japan held interest rates steady.

The so called “core-core” inflation rate, which strips out prices of both fresh food and energy and is closely monitored by the BOJ, climbed to 2.6% from 2.5% in the month before.

In its statement, the central bank said that “underlying CPI inflation is expected to increase gradually” and be “generally consistent” with its target of 2%.

The BOJ said core inflation is likely to increase over its 2025 fiscal year, due to high rice prices and the easing of government measures to push down inflation.

Exchange rate developments are also more likely to affect prices, the BOJ added, saying “there remain high uncertainties surrounding Japan’s economic activity and prices, including the evolving situation regarding trade and other policies in each jurisdiction.”

The inflation numbers also came amid strong wage hikes achieved from unions in the shunto wage negotiations, boosting the case for the BOJ to continue normalizing its monetary policy.

Japan’s largest labor union announced on March 14 that it managed to secure an average 5.46% increase in wages from April — its largest increase in over three decades.

The Japanese Trade Union Confederation, or Rengo, which has around 7 million members, said that the first tabulation of the results covering 760 unions was 0.18 percentage points higher than last year’s increase of 5.28%.

Small to medium-sized businesses saw an average rate rise of 5.09%, up 0.67 percentage points from last year and the first time since 1992 that the wage hikes for such companies crossed the 5% mark.

UA Zensen, an umbrella group representing retail, restaurant and other industry unions, reportedly said 139 of its member unions received an average increase of 5.37% in monthly wages for full-time workers, slightly less than 2024’s record figure of 5.91%.

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