Japan’s core consumer inflation rose to a 19-month high in January, exceeding market forecasts and fueling speculation that the Bank of Japan will continue raising interest rates. The core Consumer Price Index (CPI) increased by 3.2% year-over-year, its fastest pace since March 2022.
The data also showed a sharp rise in the index excluding fresh food prices, which rose to 2.5% year-over-year, the highest level since March 2022. This has led to concerns about stubbornly high prices for fuel and food, which may slow down inflationary pressure.
Despite this, economists believe that the Bank of Japan will keep raising interest rates, with most expecting a rate hike in the third quarter to 0.75%. The central bank’s decision is influenced by rising wage growth and its target of achieving sustainable inflation of 2%.
The BOJ raised its short-term interest rate to 0.5% from 0.25% in January, reflecting its conviction that Japan was making progress in sustainably achieving its inflation target. However, the data highlights the challenges faced by the central bank in managing inflation, particularly with regards to food and fuel prices.
The Bank of Japan’s decision will be closely watched by markets, which have already seen a rise in bond yields following the release of the inflation data.
Source: https://www.reuters.com/markets/asia/japans-core-inflation-hits-19-month-high-keeps-boj-rate-hike-bets-alive-2025-02-20