Japan’s Inflation Rises to 4%, Increasing Pressure on BOJ for Rate Hike

Japan’s inflation rate in January rose by 4% compared to the same month last year, reaching its highest level since January 2023. This increase strengthens the case for the Bank of Japan (BOJ) to raise interest rates.

Core inflation, which excludes fresh food prices, climbed to 3.2%, up from 3% in December and higher than economists’ predictions of 3.1%. This was the highest level since June 2023. The “core-core” inflation rate, which excludes both fresh food and energy prices and is closely watched by the BOJ, slightly increased to 2.5% from 2.4%.

The headline inflation rate, which was 3.6% in December, has stayed above the BOJ’s target of 2% for 34 months in a row. Following the data release, the yen strengthened 0.15% against the dollar, reaching 149.39 yen.

The inflation figures suggest that the BOJ may consider raising rates, as it discussed tightening monetary policy during its January meeting. The BOJ also expressed concerns about inflation risks and the weakness of the yen.

Despite strong GDP growth in the country, Japan’s full-year GDP growth for 2024 is expected to slow to just 0.1%, much lower than the 1.5% growth in 2023.