In Japan, inflation has reached a 41-year high

Even with volatile fresh food and energy prices excluded, the percentage for December was 3%.

Consumer prices in Japan went up by 4% in December compared to the same month last year, according to data released by the government on Friday. This is the highest level since December 1981.

After prices went up by 3.7% in November, the ministry of internal affairs thought that inflation for the whole year of 2022 would be 2.3%.

The data came out days after the Bank of Japan once again decided to maintain its ultra-easy monetary policy, defying other central banks that have raised rates to combat rising prices.

Even though the December number was much lower than the still very high levels that have worried Americans, Britons, and others, it was still much higher than the BoJ’s long-term inflation goal of 2%.

Even with volatile fresh food and energy prices excluded, the percentage for December was 3%.

According to the government data, increases in gas and power prices, telecommunications costs, and the cost of a variety of processed foods all contributed to the December acceleration.

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But the central bank has often stated that it thinks the price increases over the past year are brief and related to extraordinary occurrences like the conflict in Ukraine and surging energy prices.

The BoJ doesn’t want to stop its easing program until it has strong evidence that price increases, including wage increases, are likely to continue.

The government has pushed businesses to raise their consistently stagnating salaries during the spring season, when corporate Japan typically receives requests for compensation increases.

BoJ is under scrutiny.
The central bank increased its October forecast of 2.9 percent inflation to 3.0 percent for the fiscal year 2022 on Wednesday.

However, inflation is expected to be 1.6 percent the following year and 1.8 percent in fiscal year 2024.

BoJ Governor Haruhiko Kuroda stated on Wednesday that “we are not at a place where we can predict that the two percent target can be achieved in a stable and sustainable way.”

The bank is under pressure to rethink its approach because the price increase for 2022 was the first in three years.

The markets were stunned last month when officials widened the range in which they permit rates for 10-year government bonds to fluctuate.

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Even though the new level was immediately put to the test, they claimed the measure would “enhance market functioning.”

The difference between the US Federal Reserve, which quickly raised interest rates last year, and the Japanese central bank has made the yen weaker against the dollar.

Gas and energy subsidies should start to lower headline inflation, according to Capital Economics economist Darren Tay, but the central bank will continue to face pressure to handle rising costs.

He said, “We do not expect a full abandonment of the yield curve control at the Bank’s April meeting.” He was talking about the limits the institution has put on how much 10-year government bond rates can change.

We do not anticipate the Bank of Japan to raise its policy rate; however, given the peak in underlying inflation, this will coincide with a recession both inside and outside of Japan.