Japan Inflation Fuels BOJ Rate Hike Bets

Tokyo's core consumer price index (excluding fresh food) held steady at 2.8% year-over-year in November, slightly exceeding economist forecasts. While processed food price gains slowed, rising electricity costs maintained inflationary pressure.

Crucially, industrial output unexpectedly rose 1.4% in October, beating estimates of a decline, driven by a rebound in car production and strong AI demand. This robust economic performance, coupled with persistent inflation (national CPI at 3% for over three and a half years), is instilling confidence within the BOJ that its 2% inflation target is sustainable.

Despite government efforts to mitigate living costs with a ¥17.7 trillion ($113 billion) stimulus package, economists believe the underlying price trend remains upward. The yen's recent weakening also adds to upside inflation risks, further bolstering the case for the BOJ to normalize monetary policy soon, with many analysts now expecting a hike by January, if not at the upcoming December meeting.