An employee at the Celsior Wadamachi supermarket in Yokohama, Japan, on Thursday, Jan. 15, 2026. Soaring food costs are a key component driving broader inflation higher, with data Friday expected to show consumer price growth has stayed above the central bank’s 2% target for four straight calendar years.
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Japan’s headline inflation rate slowed sharply to 2.1%, its lowest level since March 2022, down from 2.9% in November, as easing price pressures collide with political focus on living costs and a looming central bank decision.
This was the 45th straight month that the inflation figure has been above the Bank of Japan’s 2% target.
Core inflation, which strips out prices of fresh food, stood at 2.4%, in line with analysts’ estimates and its lowest level since October 2024. That was sharply lower than November’s 3%.
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 is set to dissolve Japan’s Lower House today in preparation for a snap election on 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.
Later today, the Bank of Japan will also release its policy decision, although economists polled by Reuters largely expect a hold at 0.75%. Fresh inflation and GDP forecasts will also come from the BOJ for 2026.
— CNBC’s Martin Soong, Chery Kang and Kaori Enjoji contributed to this report.