Japan core inflation climbs to a 16-month high, boosting case for rate hikes

Japan’s core inflation rate rose to a 16-month high of 3% in December, year-on-year, increasing the case for a rate hike by the Bank of Japan.

This was in line with inflation expectations from economists polled by Reuters, and higher than the 2.7% increase in prices recorded in November.

December’s reading means that core inflation in the country has met or exceeded the Bank of Japan’s 2% target for 33 months in a row. The core inflation reading only tracks fresh food prices, but includes energy.

The general inflation rate in Japan reached 3.6%, accelerating sharply from 2.9% in November and hitting its highest level since January 2023.

The reading comes amid the Bank of Japan’s policy meeting, which concludes today. A strong inflation reading offers the BOJ more room to raise rates.

So-called “core-core” inflation, which takes out fresh food and energy prices and is tracked by the BOJ, remained steady at 2.4%.

Immediately after the release of data, the yen marginally weakened to trade at 156.1 against the dollar.