Bags of rice stacked high in a supermarket in central Tokyo on November 22, 2024.
Richard A. Brooks | afp | fake images
An inflation gauge in Japan that is closely watched by the Bank of Japan (BOJ) hit a seven-month high in November, which could lead the central bank to raise rates early next year.
The so-called “core” inflation rate, which excludes prices of both fresh food and energy and is tracked by the Bank of Japan, rose to 2.4% from 2.3%, its highest level since April.
The core inflation rate, which excludes fresh food prices, reached 2.7%, up from 2.3% in October and exceeding the 2.6% forecast by economists polled by Reuters.
Headline inflation rose from 2.3% to 2.9%, reaching its highest level since August.
The readings come a day after the Bank of Japan kept interest rates steady at 0.25%, surprising economists who had expected a 25 basis point increase.
The BOJ said in its statement on Thursday that the decision to hold was a split 8-1 decision, with board member Naoki Tamura advocating for a 25 basis point increase.
Tamura said inflation risks had become more skewed to the upside and proposed that the bank raise interest rates during the meeting.
Bank of Japan Governor Kazuo Ueda reportedly said at a press conference on Thursday that as core inflation was only rising “at a moderate pace,” the Bank of Japan could be slow to raise rates, he said. .
Ueda added, however, that the central bank was aware that if it waited too long to raise rates, it would have to accelerate the hikes in future meetings.
Speaking to CNBC's “Squawk Box Asia,” Masahiko Loo, senior fixed income strategist at State Street Global Advisors, said the inflation figure is “pretty much in line with what we think.”
He added that the BOJ is “super optimistic” about the country's inflation and growth figures, but Ueda was probably focusing on foreign uncertainties, namely the impact of the incoming Donald Trump administration.
The yen weakened against the US dollar following the BOJ's decision to hold rates. It hit 157.92 on Friday, its weakest level since July. However, the currency subsequently strengthened again.
Loo explained that now that the yen is “drifting” towards the 160 level against the dollar, Japan's Finance Ministry could try to issue warnings to the market or, failing that, could force a rate hike in January in an attempt to prop up the yen.
