Inflation in Japan reaches record 3.7%, BOJ's policy to be closely watched

Inflation in Japan reaches record 3.7%, BOJ's policy to be closely watched

The core consumer price inflation rate in Japan has reportedly climbed to 3.7% in November. It is worth mentioning that this is the largest increase observed since 1981, during which time, Middle East conflict had hindered oil production and drove up energy costs.

Japanese residents are now suffering from rising costs despite sluggish earnings after the nation spent decades attempting to boost inflation. The Bank of Japan (BOJ) maintained its ultra-loose monetary system up until this point in order to stimulate its financial structure.

To the market's astonishment, it increased the ceiling on the interest rate on its 10-year government bonds from 0.25% to 0.5% earlier this week. As a result, the value of the Japanese yen has risen dramatically relative to the US dollar, reaching 151 yen to the dollar for the first time since 1990.

The country's inflation has been fuelled by the weak currency, which hastened the spike in import prices brought on by the conflict in Ukraine.

Interestingly, Japan has one of the lowest rates of inflation in the world and has defied the G7 pattern of progressively hiking interest rates to rein in surging expenditures. While it is 11.1% in the EU and 10.1% in the UK, the annual inflation rate in the US is 7.1%.

Amid this situation, a record USD 863 billion budget for Japan's upcoming fiscal year beginning in April was published on Friday i.e., 23rd December, driven up by more military spending and increasing social security payments due to the country's rapidly aging population.

The budget, which was approved by the cabinet of Prime Minister Fumio Kishida on Friday along with a scheme to issue bonds, is focused on dealing with regional security threats from an increasingly assertive China and an erratic North Korea.

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