Japan’s headline inflation remains near 4 percent, BOJ expects rate hike likely Reuters

By Leica Kihara

TOKYO (Reuters) – Japan’s annual headline inflation rose to a stubborn 3.8% in December on higher food costs, data showed on Thursday, pointing to persistent inflationary pressures that could prompt the central bank to raise interest rates next week.

The information came from Bank of Japan Governor Kazuo Yuda’s comments on Wednesday. A rate hike will be debated at the Jan. 23-24 meeting, which will signal that the US president-elect will take on borrowing costs, barring any market shocks. Donald Trump takes office on Monday.

The corporate goods price index (CGPI), which measures the price companies pay for their goods and services, showed a year-over-year increase in line with mid-market forecasts and followed a 3.8% annual increase in November.

The rise in the price of rice led to a 31.8 percent increase in the cost of agricultural products. Fuel costs have also increased as government subsidies have been cut to curb consumption and petrol prices.

A yen-based index of import prices rose 1.0 percent in December from a year earlier, data showed, as the yen’s weakness continued to increase costs for companies.

Takeshi Minami, chief economist at Norinchukin Research Institute, said that “bulk inflation is pushing up strongly,” adding that Trump’s tariffs, immigration and energy policies could affect exchange rate movements, including Japan’s monetary policy.

The closely watched wholesale price data, a key indicator of consumer price trends, will be among the factors in the BOJ’s decision to raise interest rates next week.