Japan’s national consumer price index (CPI), excluding fresh food, rose 2% year on year in January. This matched expectations.
This figure is the core CPI measure, which removes fresh food prices. It helps track inflation trends with fewer short-term swings.
Bank Of Japan Policy Implications
Japan’s core inflation has reached the Bank of Japan’s 2% target, making this an important turning point. Because the result matched forecasts, it is not a surprise, but it strengthens the case for the BoJ to move away from negative interest rates. We should be ready for a major policy change, possibly at the March or April meeting.
This supports the yen and may push USD/JPY lower. Recent market data shows a sharp rise in demand for JPY call options, suggesting more investors expect the yen to strengthen. We may want to position for a move toward 140–142 by buying USD/JPY puts or selling futures.
The end of Yield Curve Control now looks like a matter of timing, not possibility, which points to higher Japanese Government Bond (JGB) yields ahead. This week, overnight index swaps are pricing in a 70% chance of a 10-basis-point hike by April 2026. Shorting JGB futures is a direct way to express a view that yields will rise.
For equities, a stronger yen often weighs on the export-heavy Nikkei 225. We saw this in the second half of 2025, when yen strength briefly cut about 5% from the index. Hedging long equity exposure with Nikkei puts or selling index futures could help protect portfolios in the weeks ahead.
What makes this inflation reading different from the temporary spikes in 2024 and 2025 is wage growth. Early updates from this month’s “shunto” spring wage talks suggest average pay increases above 3.5%, the highest in decades. This points to more durable inflation and may give the BoJ the final evidence it has been waiting for.
Volatility And Positioning
The main takeaway is that volatility may be returning to Japanese markets after years of being held down by BoJ policy. Options that benefit from larger price moves, such as straddles on major currency pairs and indices, could become more attractive. We will closely monitor BoJ official comments for any shift in tone, because their guidance now matters more than ever.
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