Japan Inflation Holds Above Target As Tariff Pressures Fade

Japan’s economy has endured global trade pressure since spring 2025, when U.S. tariff policy raised duties as high as 12.5% on automobiles, a key export. While the move weighed on carmakers, the weaker yen helped cushion earnings. Fears that tariffs would trigger a wider slowdown eased as U.S. consumption stayed firm and job losses remained limited. At home, confidence improved, with the Bank of Japan’s business survey showing conditions at plus 17, the strongest reading since 2018, alongside a steady recovery in consumption. Inflation has replaced deflation, with consumer prices rising 2.1% in December 2025. Food prices, especially rice, led gains, while services inflation stayed near 1.5%. The Bank raised its policy rate to 0.75% in December, signaling cautious increases to anchor inflation near 2%.