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An employee at the Celsior Wadamachi supermarket in Yokohama, Japan, was seen on Thursday, January 15, 2026, amidst rising food costs—a major factor pushing overall inflation upwards. Anticipation is high as data expected on Friday could reveal that consumer price growth has surpassed the central bank’s 2% target for an unprecedented fourth consecutive year.
In a notable shift, Japan’s headline inflation rate has decreased significantly, reaching 2.1% in December. This marks the lowest level since March 2022 and a drop from 2.9% in November, highlighting a clash between easing price pressures and political concerns about living costs. This comes as the central bank is poised to make a crucial monetary policy decision.
December’s figures represent the 45th consecutive month where inflation has exceeded the Bank of Japan’s 2% benchmark, underscoring persistent economic challenges.
Core inflation, which excludes volatile fresh food prices, matched analysts’ predictions at 2.4%. This is its lowest since October 2024, and a significant decline from November’s 3% rate.
The “core-core” inflation rate, which further excludes energy costs, dipped slightly to 2.9%, compared to 3% in the previous month, indicating a mild easing in underlying inflationary pressures.
The so-called “core-core” inflation rate — which strips out prices for fresh food and energy — eased to 2.9% from 3% a month earlier.
Japan’s full-year inflation stood at 3.2%, according to government data. Inflation hit a two-year high in January 2025, before tapering down over the course of the year.
However, Japan saw rice inflation hit its highest in over 50 years in May, and rice prices soared to record highs then.
Rice inflation for December came in at 34.4%, marking the seventh straight month of decline from a year ago.
Despite that, rice prices in Japan remain near record levels. Data from Japan’s agriculture ministry showed the average price of a 5-kilogram bag of rice was at 4,267 yen for the week ended Jan. 11.
Back in 2025, soaring rice prices and careless comments cost then farm minister Taku Eto his job and reportedly prompted former prime minister Shigeru Ishiba to take personal responsibility for lowering prices as a rice shortage took hold.
“Goods inflation in Japan is still the main driver of inflation,” Marcel Theliant, Head of Asia Pacific at Capital Economics, told CNBC’s “Squawk Box Asia” on Friday.
He noted that in 2025, import prices slowed as the yen strengthened, but they have since stopped falling.
“So it’s possible [that] goods inflation probably remains higher for longer, and that will keep inflation above the BOJ’s target for longer.”
This would possibly prompt an interest rate hike as soon as April, Theliant said.
Snap election
The data comes as Prime Minister Sanae Takaichi dissolved Japan’s Lower House on Friday ahead of a snap election scheduled for Feb. 8.
Takaichi has made tackling the cost of living a priority and has vowed to suspend Japan’s 8% food tax for 2 years to help households with rising living costs.
Last year, her government put together a massive $135 billion stimulus package for the country, which included measures to expand local government grants, as well as provide subsidies for electricity and gas bills.
Separately, the Bank of Japan slightly raised its inflation forecast for the 2026 fiscal year to 1.9% from 1.8% and held its policy rate at 0.75%.
— CNBC’s Martin Soong, Chery Kang and Kaori Enjoji contributed to this report.
