Japan’s core inflation climbs to 16-month high, increasing the case for a rate hike

Japan’s core inflation 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.

That was in line with inflation expectations from those polled by Reuters and higher than the 2.7% rise in prices recorded in November.

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

Japan’s headline inflation hit 3.6%, having accelerated 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 due to conclude today. A strong inflation reading offers more room for rate hikes.

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

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