Tokyo’s CPI excluding fresh food rose 1.8% year on year in February. This was above the forecast of 1.7%.
The reading indicates a 0.1 percentage point difference versus expectations. The data refer to Japan’s Tokyo core inflation measure for February.
Implications For Bank Of Japan Policy
This morning’s Tokyo CPI reading is a critical signal for us. Coming in at 1.8%, it has surpassed expectations and brings the Bank of Japan’s 2% inflation target clearly into view. This increases the probability of a policy rate hike at the next BoJ meeting in March.
In the currency market, we should anticipate a stronger yen as rate hike speculation builds. This suggests positioning for a lower USD/JPY exchange rate by purchasing puts or establishing bearish option spreads. This data is the most significant since the BoJ’s slow normalization process began back in 2025.
For interest rates, this inflation print will apply upward pressure on Japanese Government Bond (JGB) yields. We see an opportunity in shorting JGB futures, as the market will price in a more aggressive policy stance from the central bank. As of January 2026, the national core CPI was hovering around 1.6%, making this Tokyo number an unwelcome acceleration for the BoJ.
Equity Market Positioning And Hedging
On the equity side, a stronger yen typically acts as a headwind for Japan’s export-heavy Nikkei 225 index. We believe it is now wise to hedge long equity portfolios by buying Nikkei puts. This is a prudent defensive move, especially considering the strong market performance we saw throughout last year.
