Japan’s core inflation rises to 16-month high, increasing case for raising rates

Japan’s core inflation rate rose to a 16-month high of 3% in December, year-over-year, boosting the case for a rate hike by the Bank of Japan.

This was in line with the inflation expectations of economists polled by Reuters and was higher than the 2.7% price growth recorded in November.

The December reading means that core inflation in the country has met or exceeded the Bank of Japan’s 2% target for 33 consecutive months. The core inflation reading excludes only fresh food prices, but includes energy.

The headline inflation rate in Japan reached 3.6%, accelerating sharply from 2.9% in November and reaching its highest level since January 2023.

The reading comes amid the Bank of Japan’s monetary policy meeting, which will conclude today. A strong inflation reading gives the BOJ more room to raise rates.

The so-called “core” inflation rate, which excludes prices of both fresh food and energy and is tracked by the Bank of Japan, held steady at 2.4%.

Immediately after the data was released, the yen weakened marginally to trade at 156.1 against the dollar.