In December, Japan's core consumer price index (CPI), which excludes the volatile fresh food sector, grew by 2.4% year-on-year, marking a decline from the 3.0% rise recorded in November. This data, released on Friday, aligns with median market expectations and indicates a moderation in inflation pace. The downward trend is primarily attributed to the base effect stemming from a previous spike in energy prices, which had surged due to the cessation of government fuel subsidies last year.
Moreover, a more refined inflation gauge, which excludes both fresh food and fuel prices and is closely monitored by the Bank of Japan (BOJ) to gauge underlying inflation trends, registered a 2.9% increase in December, slightly lower than the 3.0% increase in November.
At the close of a two-day policy meeting on Friday, the BOJ is widely expected to sustain its key policy interest rate at 0.75%. However, signals suggest readiness to continue incremental hikes in borrowing costs as Japan navigates a period of moderate economic recovery. The central bank had previously ended its decade-long expansive stimulus program in 2024 and embarked on incremental interest rate increases, including a move in December, based on assessments that the economy is making steady progress toward achieving a durable 2% inflation target.