Japanese inflation hits 41-year high

Inflation in Japan hit 4% in December, figures released on January 20 show, though central bank officials remain uncertain that the increases will prove durable.

The figure for consumer price index inflation excluding fresh food – the Bank of Japan’s preferred measure – rose to its highest level since December 1981. Major factors contributing to the rise included energy, durable goods and raw material costs. Inflation is now double the BoJ’s 2% target, though officials had promised to overshoot the target to make up for years of weak price increases.

Minutes of the BoJ’s latest policy board meeting, released today (January 23), show debate over how durable inflation will prove to be. One member said the wide distribution of price increases across the economy, and the strong core inflation figure (3%, excluding food and energy), resembled the economy’s state before the “deflationary period”. This could mean inflation will persist.

However, another board member countered that services inflation – one marker of sustained price rises – appeared to reflect temporary high raw materials costs. “There was still a long way to go to achieve the price stability target of 2% in a sustainable and stable manner,” this individual said.

Investors have been testing the BoJ’s commitment to its monetary policy, which remains much easier than most advanced economy central banks. Policy-makers defied widespread expectations of a change to their yield curve control tool on January 18, opting to leave policy unchanged.