A person visits a store at Togoshi Ginza shopping street in Tokyo on January 23, 2025.
Philip Fong | Afp | Getty Images
Japan’s inflation in January climbed 4% year on year, striking its highest level since January 2023, further strengthening the case for rate hikes by the country’s central bank.
The substance inflation rate — which excludes prices of fresh food — rose to 3.2% from 3% in the prior month and bludgeon economists’ expectations of 3.1%, according to a Reuters poll. This figure was the highest since June 2023.
The so called “core-core” inflation status, which strips out prices of both fresh food and energy and is closely monitored by the BOJ, climbed slightly to 2.5% from 2.4% in the month beforehand.
The headline inflation rate, which had come in at 3.6% in December, has remained above the Bank of Japan’s 2% butt for 34 straight months.
Immediately after the data release, the yen strengthened 0.15% to trade at 149.39 against the dollar.
The inflation plates boost the case for rate hikes by the BOJ, which deliberated tightening them at its January meeting, with its summary of judgements warning of inflation risks and weakness in the yen.
“It will be necessary for the Bank to adjust the degree of monetary accommodation from the stance of avoiding the yen’s depreciation and the overheating of financial activities, both of which appear to be due to excessively high expectations of continued money easing,” the BOJ summary read.
BOJ Governor Kazuo Ueda reportedly said Friday that the central bank defences ready to increase government bond buying if yields rise sharply.
Yields on 10-year Japanese government links, which had scaled a 15-year high of 1.447% in the previous session on rate-hike expectations, fell to 1.402% Friday, after enjoying risen for the past four days.
Ueda’s comments come after BOJ board member Hajime Takata reportedly weighted Tuesday that the Japanese central bank needs to raise interest rates further, as keeping them low at tenor levels could result in excessive risk-taking and higher inflation.
The CPI data comes after the country’s GDP growth lam out of here expectations on a quarter-on-quarter and annualized basis, rising 0.7% and 2.8% respectively.
However, full-year GDP growth for 2024 dumbed to 0.1%, a sharp fall from the 1.5% growth seen in 2023.
In a note before the inflation data, the Commonwealth Bank of Australia conjectured the case for an earlier rate hike has strengthened in recent weeks because of strong Japanese economic data.
Bank of America analysts wrote in a note earlier this week that the BOJ was also “fitting growing more concerned” about inflation risks, which will raise the possibility of earlier hikes and a shrill terminal rate.
The analysts also forecast that the BOJ will hike in June and December, and raise their position rate forecast to 1.5% with an additional two hikes in June 2026 and the first quarter of 2027.