Core-core inflation hits seven-month high in Japan, sparking economic concerns

Japan experienced a significant rise in inflation, as evidenced by official data released on December 20, 2024. The nationwide core consumer price index (CPI) saw an increase of 2.7 percent in November compared to the same month the previous year. This uptick was largely attributed to escalating food and energy prices, which have been straining household budgets. Additionally, this figure aligns closely with an earlier market forecast of a 2.6 percent increase, reflecting a broader trend of rising costs within the economy. The core inflation rate, which excludes fresh food, rose from 2.3 percent in October to 2.7 percent in November. Meanwhile, the 'core-core' inflation rate, which also excludes energy, rose to 2.4 percent from 2.3 percent, marking a seven-month high and indicating persistent inflationary pressure in the Japanese economy. These inflation figures pose a challenge for the Bank of Japan (BOJ), which has maintained its interest rate at 0.25 percent as of December 19, 2024, despite market expectations for a potential hike. The BOJ's decision to hold rates steady was marked by a split vote of 8-1, with one board member advocating for an increase due to growing inflation risks. BOJ Governor Kazuo Ueda suggested that the bank required further evidence of sustained economic conditions before committing to rate hikes, particularly emphasizing the importance of domestic demand and wage growth. This cautious stance comes in the context of ongoing economic uncertainties, including currency fluctuations and external political factors. Market analysts predict that if inflation continues on this trajectory, the BOJ may need to reconsider its position sooner rather than later. The persistent rise in inflation is fuelling concerns that the central bank could be forced into a corner, needing to enact more aggressive monetary policy responses to stabilize prices. The combination of rising import costs due to yen depreciation adds another dimension to the inflationary challenges facing Japan, further complicating the BOJ's decision-making process moving forward.