Interest rate hike expectations heat up again! Japan's January CPI soars to 4%, hitting a two-year high
Japan's January CPI rose 4% year-on-year, reaching a two-year high, while core CPI increased by 3.2%, exceeding expectations and fueling interest rate hike expectations. The Japanese yen strengthened slightly against the US dollar, and the 10-year government bond yield rose to 1.55%. The Bank of Japan raised interest rates by 25 basis points at the January meeting and discussed the possibility of further tightening monetary policy. Although the GDP data for the fourth quarter of 2024 was better than expected, the annual growth rate was only 0.1%. The next meeting of the Bank of Japan is scheduled for March 19
Japan's January inflation exceeds expectations, raising the Bank of Japan's interest rate hike expectations.
Latest data shows that Japan's core CPI in January rose by 3.2% year-on-year, higher than last month's 3% and economists' expectations of 3.1%, marking the highest level since June 2023; the year-on-year increase in January CPI reached 4%, the highest in two years since January 2023, having exceeded the Bank of Japan's 2% target level for 34 consecutive months.
After the inflation data was released, the yen appreciated slightly against the dollar by 0.15% to 149.39, but then quickly turned to decline. The yield on Japan's 10-year government bonds briefly rose to 1.55%, the highest level since November 2009, indicating that market expectations for interest rate hikes have warmed.
Previously, the Bank of Japan raised interest rates by 25 basis points as expected at the January monetary policy meeting and discussed the possibility of continuing to tighten monetary policy, stating that if future actual conditions meet expectations, it will continue to raise interest rates and adjust the degree of monetary easing.
The Bank of Japan stated in the meeting minutes:
"From the perspective of avoiding yen depreciation and overheating of financial activities, it is necessary to adjust the degree of monetary easing, both of which seem to be caused by excessive expectations of sustained monetary easing."
However, the outlook for Japan's economic growth remains unclear. Although the latest data shows that Japan's GDP for the fourth quarter of 2024 was better than expected, with a quarter-on-quarter growth of 0.7% and an annualized growth of 2.8%, the annual GDP growth rate is only 0.1%, far below 1.5% in 2022.
Public information indicates that the Bank of Japan will hold its next monetary policy meeting on March 19.
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