Japan Core Inflation Holds at 3% in November

Japan’s core consumer price index, which excludes fresh food but includes energy, rose 2.4% year on year in December 2025, easing from 3% in November and marking the weakest pace since October 2024. The reading was in line with market expectations and comes ahead of the Bank of Japan’s upcoming policy decision, where policymakers are widely expected to keep interest rates unchanged after December’s hike. Even so, markets continue to price in another rate increase later this year, potentially as early as June. BOJ Governor Kazuo Ueda has repeatedly stated that the central bank remains prepared to tighten policy further if economic activity and inflation evolve in line with its projections. However, the outlook has become more complex after Prime Minister Sanae Takaichi called a snap election to consolidate power and advance expansionary fiscal measures, including a proposal to cut the 8% sales tax on food, which has heightened concerns about Japan’s fiscal trajectory.

Japan’s core consumer price index, which excludes fresh food but includes energy, rose 3% year-on-year in November 2025, unchanged from October and in line with market expectations. The reading remains well above the Bank of Japan’s 2% target, reinforcing the case for a near-term interest rate hike. The central bank is widely expected to raise its policy rate by 25 basis points to 0.75% on Friday to curb inflation, with markets pricing in a further increase toward 1% by July next year. However, the outlook has been complicated by a downward revision to third-quarter GDP, which indicated a sharper contraction than previously estimated. Adding to the policy debate, Prime Minister Sanae Takaichi, a proponent of looser monetary policy, reportedly told a business lobby on Wednesday that Japan should prioritize proactive fiscal spending rather than excessive tightening to support growth and bolster tax revenues.

Japan’s core consumer price index, which excludes fresh food but includes energy, rose 3% YoY in October 2025, the highest in three months and in line with expectations. The reading accelerated for a second straight month after 2.7% in August and 2.9% in September. Rising food costs drove the uptrend, reflecting poor harvests, especially in rice, and higher global grain prices. A sharply weaker yen also lifted import costs, adding to domestic inflation pressures. Core inflation remained well above the Bank of Japan’s 2% target, giving policymakers more room to raise interest rates. The data arrived as markets await a widely anticipated stimulus package from Prime Minister Sanae Takaichi’s government.