Japan inflation slows to 2.5% in Nov as energy bills drop

Japanese consumer inflation slowed to 2.5 per cent year-on-year in November, down from 2.9 per cent the previous month, as electricity and gas bills declined, government data showed Friday.

The figure for the world's third-largest economy, which excludes volatile fresh food prices, was in line with market expectations in a Bloomberg survey.

It is the lowest increase in prices since July 2022, as electricity and gas bills declined while the cost of accommodation and telecommunications rose, according to the internal affairs ministry.

The data comes after the Bank of Japan (BoJ) earlier this week maintained its long-standing, ultra-loose monetary policy and offered no guidance on its plans for the new year, sending the yen down against the dollar and boosting stocks.

Inflation slowed "as prices of (processed) food soared the previous year, while price increases (for November) have somewhat settled down," chief economist Yoshiki Shinke of Dai-ichi Life Research Institute told AFP.

"The same can be said for electricity and gas bills," he said.

Speculation had been swirling for weeks that central bank officials would shift away from negative interest rates and their tight grip on bond yields as prices tick above the central bank's 2-percent inflation target.

BoJ governor Kazuo Ueda has repeatedly said that "a virtuous cycle of wages and prices" is needed to confirm that the bank's inflation target can be achieved sustainably, referencing an expected rise in wages early next year after annual union negotiations.

Stripping out fresh food and energy, Japan's prices rose 3.8 per cent, in line with market expectations, after a 4.0 per cent rise in October.

Japan, like other economies around the world, has seen prices rise on the back of the Ukraine war, while a weaker yen has also made imports more expensive.

Unlike other major central banks that have raised interest rates, the Bank of Japan has stuck to its ultra-loose monetary policy in the expectation that inflation will ease, adding pressure on the yen.

After dipping to nearly 152 yen against the dollar in late October, the Japanese currency has gradually rebounded as speculation grows that the central bank may end its super-loose monetary policy early next year.

While the yen's recent appreciation against the dollar had "little impact" in November's consumer price index, it could have an effect "in the coming months", Shinke of Dai-Ichi Life said.

The interest rate gap between Japan and the United States -- a key factor that has driven the yen lower against the greenback -- is also expected to narrow as the US Federal Reserve has held rates steady after a lengthy series of hikes to battle inflation, hinting it will finally cut rates next year.