Japan inflation slows to 1.5% in January, core measures ease. What will the BoJ think?

Japan's inflation cooled sharply in January, with year-on-year consumer prices rising just 1.5%, down from 2.1% in December, and below the 1.6% consensus forecast. This marks the lowest annual inflation rate since March 2022. Core inflation also eased, while the Bank of Japan has recently adjusted its fiscal 2026 inflation forecasts upward despite an expected dip in the short term. The political landscape, with the Prime Minister's party securing a significant electoral victory, adds a layer of complexity, suggesting measures that could further dampen inflation. Investors need to be cautious, balancing the implications of softer inflation against the Bank's medium-term outlook, which anticipates persistent underlying price strength.