Japan’s Core Consumer Inflation and Upcoming Rate Hike

TOKYO (Reuters) – Japan’s core consumer inflation is expected to rise in December, driven by increased energy costs, with the Bank of Japan (BOJ) likely to raise rates next week, according to a Reuters poll.

The core consumer price index (CPI), which includes oil prices but excludes fresh food, is projected to climb to 3.0% in December compared to the previous year, marking the highest level since August 2023, when it was at 3.1%.

Economists suggest that the government’s reduction of energy subsidies has contributed to this rise in core inflation.

The internal affairs ministry is set to release the CPI data at 8:30 a.m. on Jan. 24 (2330 GMT, Jan. 23).

The survey indicates that the Bank of Japan is expected to increase rates from 0.25% to 0.5% during its monetary policy meeting on Jan. 23-24. BOJ Governor Kazuo Ueda hinted that the bank would consider this move unless there are significant market disruptions following the upcoming U.S. presidential inauguration.

According to economists at Morgan Stanley MUFG Securities, absent major market turmoil, a rate hike this month appears almost guaranteed.

Additionally, the data for trade shows that exports likely grew 2.3% in December, slower than a 3.8% increase in November, while imports are expected to rise by 2.6%, leading to a deficit of 53 billion yen ($341 million) in December.

Takumi Tsunoda, senior economist at Shinkin Central Bank Research Institute, noted that modest export growth is attributed to the slow recovery in auto production amid sluggish global production.

Trade data results will be shared at 8:50 a.m. on Jan. 23 (2350 GMT, Jan. 22).

Additionally, machinery orders, a volatile indicator of future capital spending, are predicted to have decreased by 0.4% month-on-month in November following a 2.1% growth in October. This report will be released at 8:50 a.m. on Jan. 20 (2350 GMT, Jan. 19).

($1 = 155.4100 yen)