Japan’s Core Consumer Prices Increase

By Leika Kihara

TOKYO (Reuters) – Japan’s core consumer prices rose 3.0% in December from a year earlier, marking the fastest annual pace in 16 months, as reported on Friday. This rise fuels market expectations that the central bank will continue to raise its ultra-low interest rates.

This data release occurred just hours before the Bank of Japan (BOJ) concludes a two-day policy meeting, where they are expected to increase short-term interest rates to 0.5% from 0.25%.

The increase in the core consumer price index (CPI), excluding volatile fresh food prices, matched market forecasts and came after a 2.7% gain in November. This is the largest year-on-year increase since a 3.1% rise in August 2023.

The uptick was largely due to the phase-out of government subsidies aimed at limiting utility costs and persistent high food prices, exacerbated by the weak yen which keeps import costs elevated.

An index that excludes fresh food and fuel costs, closely monitored by the BOJ as an indicator of domestic price pressure, rose 2.4% in December from a year earlier, remaining steady from November.

The BOJ halted negative interest rates in March and raised its short-term rate target to 0.25% in July, believing that Japan is on a sustainable path to meet the bank’s 2% inflation target. Governor Kazuo Ueda has indicated a willingness to increase rates if broader wage hikes support consumption and allow companies to keep increasing prices, not only for goods but also for services.