Japan’s latest round of economic data is reinforcing expectations that the Bank of Japan may resume its rate-hike cycle in the coming months, as inflation in Tokyo holds well above target and factory output shows a brief uptick before an expected slowdown.
Tokyo core CPI, a leading gauge of nationwide price trends, rose 2.8% in November from a year earlier, slightly above expectations and unchanged from October. The measure excluding both fresh food and fuel, closely watched as a proxy for demand-driven inflation, also held at 2.8%. Much of the pressure continues to come from food, with sharp year-on-year increases in staples such as rice, coffee beans and chocolate. Service-sector inflation remained softer at 1.5%, but still consistent with persistent price momentum.
Economists say the data keep the BOJ on a tightening path.
Fresh figures on activity also:
- Factory output unexpectedly rose 1.4% in October thanks to strong auto production, even as manufacturers forecast declines of 1.2% in November and 2.0% in December, signalling that the drag from U.S. tariffs may intensify.
- Retail sales and employment were steady in October, suggesting Japan is weathering external pressures for now.
The recent slide in the yen, now around 10-month lows, adds another layer to the calculus. Policymakers worry that further depreciation could push food and imported-goods inflation even higher. BOJ board member Asahi Noguchi warned this week that delaying tightening for too long risks embedding stronger price pressures.
The government remains divided. Prime Minister Sanae Takaichi’s reflationist advisers have argued against raising rates while consumption remains fragile and the economy shrank in the third quarter. But the combination of sticky inflation, a weak yen and credible wage gains has shifted sentiment on the BOJ board toward tightening sooner rather than later.
The overall picture suggests Japan is edging closer to its next rate increase, whether in December or early 2026, as inflation stays above target and the policy debate tilts toward acting pre-emptively to stabilise prices and the currency.
