An inflation gauge closely tracked by Bank of Japan jumps to seven-month high

An inflation indicator in Japan that is closely watched by the Bank of Japan (BOJ) reached a seven-month high in November, which could prompt the central bank to raise rates early next year.

The so-called “core-core” inflation, which destroys the prices of fresh food and energy and is followed by the BOJ, increased to 2.4% from 2.3%its highest level since April.

The core inflation rate – which strips out fresh food prices – came in at 2.7%, up from 2.3% seen in October and beating the 2.6% expected by economists polled by Reuters.

Headline inflation rose to 2.9% from 2.3%, reaching its highest level since August.

The readings come a day later The Bank of Japan kept interest rates steady at 0.25%, surprising economists who expected a 25 basis point increase.

The BOJ said in its statement on Thursday that the decision to hold was an 8-1 split decision, with board member Naoki Tamura supporting a 25 basis point hike.

Tamura was of the opinion that the risks of inflation have become more skewed to the upside, and proposed that the bank increase interest rates during the meeting.

BOJ Governor Kazuo Ueda said at a press conference on Thursday that as underlying inflation was rising only “at a moderate pace,” the BOJ could slow down in raising rates, he said.

Ueda added, however, that the central bank was wary that if it waited too long to raise rates, it would have to accelerate rate increases in future meetings,

Speaking to CNBC”Squawk Box AsiaMasahiko Loo, senior fixed income strategist at State Street Global Advisors, said the inflation picture is “pretty much in line with what we think.”

He added that the BOJ is “super bullish” on inflation and the country’s growth, but Ueda was likely focused on foreign uncertainties, namely the impact of the incoming Donald Trump administration.

The yen weakened against the US dollar after the BOJ’s decision to keep rates on hold. It hit 157.92 on Friday, marking its weakest level since July. In any case, the currency later strengthened again.

Loo explained that, with the yen now “drifting” towards the 160 level against the greenback, Japan’s finance ministry could try to issue warnings to the market, or, in the event, could force a rate hike in January in an attempt to support the yen.