Japan's inflation highest in 41 years

High food prices and a weak yen will push Japan's core consumer price index (CPI) up 3.1% in 2023.

Official data released on January 19 showed that Japan's core inflation (excluding fresh food prices) last year was 3.1%, the highest since 1982. The main reasons were high food prices and a weak yen, which made imports more expensive.

Core inflation was 2.3% in December alone, down from 2.5% in November. This has exceeded the Bank of Japan's (BOJ) 2% target for 21 consecutive months.

The December figures also matched the forecasts of economists polled by Reuters. According to Japan's Ministry of Internal Affairs and Communications, hotel room prices in Japan rose 59% in December, while electricity prices fell 20.5%.

December figures showed a slowing trend in inflation. Compared to 2022, food price increases have slowed, said Kanako Nakamura, an economist at Daiwa Research Institute. Food prices have risen sharply here due to rising import costs, logistics and domestic wages.

The inflation figures come as the Japanese government urges businesses to raise wages ahead of annual negotiations between executives and unions. The report also comes amid market expectations that the BOJ will end its negative interest rate policy early this year.

“The question now is whether consumption can pick up the pace to keep prices rising. Weak consumption will drag down inflation, making it harder to maintain the 2% target this year,” said Yoshiki Shinke, an economist at Dai-ichi Life Research Institute.

However, observers believe that the BOJ will not change monetary policy at next week's meeting. The 1-year reference rate here is currently -0.1%.

Ha Thu (according to Nikkei Asia Review, Kyodo News)

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