By Leika Kihara

Core Inflation in Japan Rises

TOKYO (Reuters) – Japan’s core inflation accelerated in November as rising food and fuel costs impacted households, according to data released on Friday, applying pressure on the central bank to consider increasing interest rates.

The data follows the Bank of Japan’s (BOJ) decision to maintain interest rates at 0.25% on Thursday, highlighting growing inflationary pressure that may compel the bank to raise borrowing costs further.

Recent declines in the yen could increase prices by raising import costs. The BOJ’s decision to keep rates steady, along with Governor Kazuo Ueda’s dovish comments, pushed the dollar to a five-month high of 157.80 yen on Friday.

The nationwide core consumer price index (CPI), which includes oil products but excludes fresh food prices, increased by 2.7% in November compared to a year earlier, closely aligning with a median market forecast of a 2.6% gain. This represents an increase from October’s 2.3% rise, due in part to persistently high rice prices and the phase-out of government subsidies for utility bills.

Capital Economics commented, “November’s surge in inflation wasn’t a surprise. The Bank of Japan will have known it was coming when it decided not to raise rates yesterday. However, this should bolster the Bank’s confidence to resume rate hikes in the upcoming months.”

A separate index that excludes volatile fresh food and fuel prices, viewed by the BOJ as a better measure of demand-driven inflation, rose by 2.4% in November following a 2.3% increase in October. Service-sector inflation remained steady at 1.5%, indicating that companies continued to pass on rising labor costs.

The BOJ eliminated negative interest rates in March and raised its short-term policy rate to 0.25% in July, based on the belief that Japan was nearing its 2% inflation target sustainably.

The central bank has emphasized its readiness to raise rates again if Japan continues to make strides toward achieving its price target, supported by domestic demand and sustained wage gains. Ueda stated on Thursday that the BOJ needed more information before raising rates again, particularly concerning next year’s wage growth and incoming U.S. President Donald Trump’s economic policies.

Naoya Hasegawa, chief bond strategist at Okasan Securities, remarked, “Given the BOJ’s assessment that import price rises are lessening, it’s unlikely they will hike rates in January. I expect a hike in March, but many market players interpreted Ueda’s press conference as quite dovish.”