People looking at fruit at a shop at Tsukiji Outer Market, Tokyo, August 22, 2025 (Photo by: Philip FONG/AFP) (Photo by: PHILIP FONG/AFP via Getty Images)
Philip Fong | AFP | Getty Images
Japan’s consumer inflation rate fell to 2.9% in November, staying above the 2% target set by the country’s central bank for the 44th straight month, adding to already strong prospects for rate hikes.
Core inflation, which excludes fresh food prices, was unchanged from 3% in October, in line with the average forecast of economists polled by Reuters.
The data came as the Bank of Japan is poised to raise interest rates to the highest level since 1995 as it concludes a two-day policy meeting later in the day.
So-called “core-core” inflation, which excludes food and energy prices, fell to 3% from 3.1%.
The US inflation rate slowed for the sixth consecutive month to 37.1%. Rice prices in May more than doubled from a year earlier, marking the highest price increase in more than 50 years.
Shigeto Nagai, head of Japan economics at Oxford Economics, told CNBC that “core-core” inflation will slow and stabilize at 2% by mid-2026 as supply-driven food inflation gradually fades.
However, Nagai warned that further supply shocks and a prolonged period of cost-push inflation due to a weaker yen poses “significant risks.”
Interest rate hikes by the Bank of Japan are likely to curb inflation and bring the rate of inflation closer to the Bank of Japan’s target. But the Bank of Japan will have to walk a fine line, as raising interest rates could weaken Japan’s already sluggish economy.
Revised third-quarter GDP figures showed Japan’s economy contracted more than originally expected, contracting by 0.6% from the previous quarter, or 2.3% on an annualized basis.
Prime Minister Sanae Takaichi reportedly told a business lobby on Wednesday that Japan needs to pursue aggressive spending rather than excessive fiscal tightening to boost growth and tax revenues. He was also a supporter of monetary easing and critical of the Bank of Japan’s interest rate hikes.
Speaking in the same business lobby, Bank of Japan Deputy Governor Masazumi Wakatabe said the government needs to boost the economy’s potential growth rate through fiscal stimulus and growth strategies and raise Japan’s neutral interest rate. A neutral interest rate refers to a policy interest rate that balances economic growth and inflation.
“If Japan’s neutral interest rate rises as a result, it is natural for the Bank of Japan to raise interest rates,” Wakatabe said, adding, “However, the Bank of Japan must avoid prematurely raising interest rates or withdrawing financial support too much.”
The Bank of Japan does not have an official forecast of a neutral interest rate, and Governor Kazuo Ueda reportedly said earlier this month that it was difficult to estimate the final rate and that the central bank was pegging it at 1% to 2.5%.
“The yen could remain under pressure if fiscal concerns and the Bank of Japan’s overly dovish views outweigh the impact of the yield gap,” Nagai said. Japan’s government bond yields remain at the highest level in decades, and the gap with global government bond yields is narrowing.
of circle The dollar rose slightly after the data release, trading at 155.53 against the greenback. Nikkei Stock Average It increased by 0.69%. The yield on 10-year government bonds fell slightly to 1.957%.
—CNBC’s Asriel Chua contributed to this article.
