Japan's core consumer inflation slowed in December but remained above the Bank of Japan's 2% target, data showed on Friday. The core consumer price index (CPI), excluding fresh food, rose 2.4% year-on-year, down from 3.0% in November. Meanwhile, the "core-core" inflation rate—excluding both fresh food and energy—rose 2.9% in December, down from 3.0% in November.
Immediate Action & Core Facts
The Bank of Japan (BOJ) is widely expected to keep its key policy rate steady at 0.75% during a two-day meeting concluding on Friday but signal readiness to continue hiking borrowing costs as the economy recovers moderately. The slowdown in inflation was largely due to the base effect of last year's jump in energy costs, which followed the end of government fuel subsidies.
Deeper Dive & Context
Inflation Trends and Market Expectations
Japan's headline inflation rate slowed sharply to 2.1% in December, its lowest level since March 2022, down from 2.9% in November. The full-year inflation rate stood at 3.2%, according to government data. The BOJ ended a decade-long stimulus in 2024 and raised interest rates in several steps, including in December, citing steady progress toward its 2% inflation target.
Rice Prices and Political Implications
Rice inflation hit a 50-year high in May, with prices soaring to record levels. In December, rice inflation was 34.4%, marking the seventh straight month of decline from a year ago. However, rice prices remain near record highs, with the average price of a 5-kilogram bag at 4,267 yen as of January 11. Soaring rice prices in 2025 led to the resignation of then-farm minister Taku Eto and prompted former prime minister Shigeru Ishiba to take personal responsibility for lowering prices amid a rice shortage.
Economic and Policy Outlook
The BOJ's decision to keep rates steady but signal future hikes reflects confidence in Japan's economic recovery. Analysts expect inflation to continue cooling, though rice prices and broader food costs remain a key driver of inflation. The political focus on living costs ahead of elections adds another layer of complexity to the economic outlook.