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Japan's inflation remained elevated in December, reinforcing expectations for a Bank of Japan (BOJ) interest rate hike. National core consumer price index (CPI), excluding fresh food, rose 3% year-on-year, meeting forecasts and marking the highest level since mid-2023, up from November's 2.7%.
Core CPI, excluding both fresh food and energy, held steady at 2.4% for a fourth straight month above the BOJ’s 2% target. Headline CPI surged to 3.6%, a two-year high, from 2.9% in November.
The data precedes the BOJ's meeting, where a 25-basis-point rate hike is widely anticipated. Inflation has consistently exceeded the 2% target since mid-2024, driven by robust private consumption and significant wage growth. A weaker yen, pressured by low domestic rates and sustained U.S. rate hikes, also contributed to higher prices.
The BOJ's shift from ultra-loose policy, marked by its first rate hike since 2008 last year, reflects increasing confidence in Japan’s economic resilience. Wage negotiations in 2025 are expected to deliver substantial increases, further supporting inflation and economic growth.
With a virtuous cycle of rising wages and consumption fueling inflation, the BOJ is likely to maintain a tightening stance to sustain economic momentum.
