On November 22, 2024, bags of rice were stacked high in a supermarket in central Tokyo.
Richard A. Brooks | AFP | Getty Images
Japan’s inflation gauge, closely watched by the Bank of Japan (BOJ), hit a seven-month high in November, which could prompt the central bank to raise interest rates early next year.
The so-called “core-to-core” inflation rate, which excludes fresh food and energy prices, is tracked by the Bank of Japan. rose from 2.3% to 2.4%the highest level since April.
Core inflation, which excludes fresh food prices, was 2.7%, up from 2.3% in October and exceeding the 2.6% forecast by economists polled by Reuters.
Headline inflation rose to 2.9% from 2.3%, reaching the highest level since August.
Readings will be released a day later The Bank of Japan kept interest rates steady at 0.25%. It surprised economists who had expected a 25 basis point rate hike.
The Bank of Japan said in a statement on Thursday that it made the decision to keep interest rates unchanged by an 8-1 split, with board member Naoki Tamura advocating a 25 basis point interest rate hike.
Tamura believes that inflation risks have become more tilted to the upside and proposed that the bank raise interest rates during the meeting.
Bank of Japan Governor Kazuo Ueda reportedly said at a news conference on Thursday that the Bank of Japan may raise interest rates slowly as underlying inflation is growing only at a “moderate pace.”
However, Ueda did add that the central bank is mindful that if it takes too long to raise rates, it will have to increase the pace of rate increases at future meetings.
In an interview with CNBC “Squawk Box AsiaMasahiko Loo, senior fixed income strategist at State Street Global Advisors, said the inflation data was “largely consistent with what we thought.”
He added that the Bank of Japan was “super optimistic” about the country’s inflation and growth data, but Ueda was likely to focus on foreign uncertainties, namely the impact of the incoming Donald Trump administration.
The yen weakened against the dollar after the Bank of Japan decided to keep interest rates unchanged. It hit 157.92 on Friday, its lowest level since July. However, the currency then strengthened again.
Loo explained that with the yen currently “drifting” to the 160 level against the dollar, Japan’s Ministry of Finance may try to warn the market, otherwise it may force a rate hike in January to support the yen.
