Higher energy costs contributed to a jump in Japanese inflation in November
Higher energy costs contributed to a jump in Japanese inflation in November AFP

Japanese inflation accelerated in November, with prices rising 2.7 percent on-year partly because of higher energy costs, government data showed Friday.

The core Consumer Price Index (CPI), which excludes volatile fresh food prices, topped market expectations and was up from 2.3 percent in October.

The reading remained above the Bank of Japan's two percent inflation target, set more than a decade ago as part of efforts to boost the stagnant economy.

The two percent target has been surpassed every month since April 2022, although central bank policymakers have sometimes questioned the role of temporary factors such as the war in Ukraine.

Analysts had forecast a core CPI reading of 2.6 percent for November. "Core core CPI", which excludes both fresh food and energy prices, stood at 2.4 percent.

Rice prices continued to soar, with the data showing an on-year increase of around 64 percent after this year's harvests were hit by hot weather and water shortages.

"Rising prices for food, including rice, and the scaling back of measures against extreme summer heat, such as subsidies for electricity and fuel bills" contributed to the jump in inflation, deputy chief cabinet secretary Fumitoshi Sato told reporters.

Japan's summer this year was the joint hottest on record -- equalling 2023 -- as extreme heatwaves fuelled by climate change engulfed many parts of the globe.

The Bank of Japan on Thursday left its borrowing costs unchanged and warned of uncertainty over the US economy under president-elect Donald Trump.

That caused the yen to fall against the dollar, extending a retreat that began Wednesday when the Federal Reserve forecast it would make fewer interest rate cuts.

On Friday morning, one dollar bought 157.61 yen, compared with about 153.60 on Wednesday.

"Despite the pause, the BoJ appears determined to tighten policy further," said Stefan Angrick of Moody's Analytics.

"The central bank's monetary policy statement maintains a fairly hawkish tone, arguing that the economy is recovering and will keep growing above its potential rate -- a view that feels at odds with the data," he said.

Weak demand has been a drag on growth for Japan, and it's likely that data will show the economy shrinking in 2024, Angrick said, adding that the bank faced a tricky situation.

"The domestic economy isn't strong enough for significant rate hikes, but maintaining the status quo risks further yen depreciation and higher inflation," he said.

"We anticipate two more rate hikes in 2025."