Japan’s Inflation Picks Up as Government Energy Subsidies Fade

Japan’s inflation has accelerated as the impact of government energy subsidies wanes, prompting continued analysis by the Bank of Japan on when to raise interest rates.

The Ministry of Internal Affairs reported on Friday that consumer prices, excluding fresh food, rose by 2.7% in November compared to the previous year, driven largely by higher energy costs. This figure surpassed expectations of 2.6% and the October increase of 2.3%. Additionally, the core inflation index, excluding energy and fresh food, increased by 2.4%, slightly higher than the previous month’s 2.3%.

These data support economists’ views that inflation is aligning with the Bank of Japan’s expectations, with the central bank likely to continue its gradual tightening of monetary policy. However, Governor Kazuo Ueda refrained from signaling a clear timeline for the next rate hike, after the central bank left the benchmark interest rate unchanged on Thursday. While he did not rule out a hike in January, his dovish remarks sparked speculation that a rate increase might come in March.

Yoshiki Shinki, chief economist at Dai-Ichi Research Institute, stated, “Today’s report likely aligns with the Bank of Japan’s view, so it won’t push the bank to accelerate rate hikes.” He added, “There’s a high chance of a rate increase in January due to the weak yen and stronger-than-expected inflation.”