Japan's consumer inflation climbed to a 16-month peak in December, exceeding the Bank of Japan's 2% target for a record 33 consecutive months. This surge strengthens the likelihood of a rate hike by the BOJ at its ongoing policy meeting.
Japan's consumer inflation rate surged to a 16-month high in December, reaching 3% year-on-year, fueled by rising energy costs. This increase, the highest since January 2023, strengthens the case for the Bank of Japan (BOJ) to raise interest rates at its ongoing policy meeting. The headline inflation rate, which encompasses both fresh food and energy prices, climbed to 3.6%, the highest level since January 2023.
This upward trend in prices comes as a surprise to some economists who had predicted a moderation in inflation. The core inflation rate, which excludes volatile fresh food prices but includes energy, rose to 3% in December, matching or exceeding the BOJ's 2% target for a consecutive 33 months. This sustained period of above-target inflation adds pressure on the central bank to tighten monetary policy. The BOJ's preferred measure, 'core-core' inflation which excludes both fresh food and energy prices, remained steady at 2.4%. The yen, Japan's currency, weakened slightly to 156.1 against the US dollar following the release of the inflation data.Economists surveyed by Reuters anticipate the BOJ to increase its key policy rate by 25 basis points to 0.5% at the conclusion of its meeting today. This would mark the highest rate since 2008. Recent statements by BOJ Governor Kazuo Ueda and other senior officials have signaled the central bank's willingness to raise rates if economic and price improvements persist. Governor Ueda explicitly stated on January 16th that the BOJ would consider rate hikes if economic and price trends remained favorable, according to a Reuters report. The upcoming policy decision will be closely watched by investors and analysts as it reflects the BOJ's stance on inflation and its commitment to achieving price stability
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