Japanese CPI Inflation in December 2023

Japanese consumer price index (CPI) inflation met expectations in December, remaining significantly above the Bank of Japan’s (BOJ) target range and indicating a likely interest rate hike by the central bank.

Key Statistics

• National Core CPI: 3% year-on-year, the highest level since mid-2023, up from 2.7% last month.
• A core CPI reading excluding fresh food and energy prices held steady at 2.4%, surpassing the BOJ’s 2% target for four consecutive months.
• Headline CPI increased to 3.6% year-on-year, a two-year high, up from 2.9% the previous month.

Context

This CPI data was released just before the conclusion of a BOJ meeting, where the expectation is a 25 basis points interest rate increase. A consistent rise in CPI inflation in the latter half of 2024 has driven this rise, attributed mainly to robust private consumption following significant wage growth over the past year.

A depreciating yen has also contributed to rising inflation due to low domestic rates and expectations of prolonged high U.S. interest rates.

The anticipated BOJ rate hike would support the improved economic outlook, driven by a positive cycle of wage hikes and robust private consumption.

Looking ahead, spring wage negotiations between labor unions and major companies are expected to produce substantial wage increases in 2025, providing further impetus for rate hikes.

The BOJ previously ended its extended period of ultra-loose monetary policy with a rate increase in 2022, the first since 2008.