CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
US English

Japan CPI forecast: Will rising inflation result in interest rate hikes in Japan?

By Mensholong Lepcha

Edited by Vanessa Kintu

16:42, 23 December 2022

People in a market in Japan
Japan has struggled with deflationary pressures since the early 1990s – Photo: Getty

The Bank of Japan (BoJ) surprised markets in December by expanding its target range for benchmark 10-year Japanese government bond (JGB) yields in a move that will allow higher long-term lending rates in the world’s third-largest economy.

Although the BoJ did not change its policy interest rates, the surprise tweak comes on the back of inflation rates trending above the central bank’s target of 2% for the majority of 2022.

Will inflation in Japan continue its rise, potentially prompting the BoJ to pivot away from its ultra-loose monetary policy? Find out more about Japan’s CPI history, the latest economic news and Japan's inflation forecast below. 

What is the consumer price index? 

The consumer price index (CPI) is used by most central banks, including the BoJ, to monitor inflation.

Inflation is defined as the increase in the price of goods and services over a period of time. The CPI index measures the rate of change of prices across a wide range of items on a month-on-month and year-over-year (YOY) basis.

CPI-measured inflation is also known as headline inflation. While an inflation index that excludes volatile items such as fuel and food prices is known as core inflation.

The majority of central banks across the world implement an inflation-targeted monetary policy where benchmark interest rates are set with the aim of achieving a specific inflation target over the medium and long term.

What is your sentiment on USD/JPY?

Vote to see Traders sentiment!

Japan inflation rate analysis: Struggling with deflation

Japan has struggled with deflationary pressures ever since an economic bubble of high real estate and stock market prices burst in the early 1990s.

A combination of weak wage growth, low consumer confidence, stagnant housing prices and government controls have kept inflation low in Japan.

Historical data on CPI of Japan showed headline inflation rose to record highs in the early 1970s due to an energy crisis brought on by the Arab-Israeli conflict. 

Fast forward to the 1990s and we see the CPI of Japan trending close to 0% for the most part of the next two decades.

More recently, inflation in Japan fell into negative territory following a drop in consumption amid strict Covid-19 restrictions. Deflationary pressures intensified as consumer prices declined 1.2% on a YOY basis in December 2020. 

By May 2021, Japan saw its eighth consecutive month of deflation. By the end of the year, the CPI of Japan saw a steady recovery due to an increase in fuel costs and commodity prices across the world. 

The start of the Russia-Ukraine war sent crude oil prices soaring, resulting in headline inflation rising above the BoJ’s target of 2% for the first time since 2015.

Data for November 2022 shows the annual inflation rate rose 3.8%, its highest reading since January 1991.

Latest news on Japan’s inflation and economy 

On 22 December 2022, Statistics of Japan reported that annual CPI inflation had accelerated at a multi-decade high pace of 3.8% during November 2022.


1.29 Price
-0.290% 1D Chg, %
Long position overnight fee -0.0046%
Short position overnight fee -0.0036%
Overnight fee time 21:00 (UTC)
Spread 0.00170


0.67 Price
-0.330% 1D Chg, %
Long position overnight fee -0.0066%
Short position overnight fee -0.0016%
Overnight fee time 21:00 (UTC)
Spread 0.00030


1.09 Price
-0.100% 1D Chg, %
Long position overnight fee -0.0087%
Short position overnight fee 0.0005%
Overnight fee time 21:00 (UTC)
Spread 0.00018


0.67 Price
-0.330% 1D Chg, %
Long position overnight fee -0.0066%
Short position overnight fee -0.0016%
Overnight fee time 21:00 (UTC)
Spread 0.00030

The November headline inflation pace was slightly higher compared to the previous month’s 3.7% but below the market consensus of 3.9%.

Market expectations of the BoJ making tweaks to its ultra-loose monetary policy had been growing due to CPI inflation rates trending above the central bank’s target for most parts of 2022 and due to the weakness of the Japanese yen seen throughout the year.

On 20 December, the BoJ widened its target range for the 10-year JGB yield – it offered to purchase the 10-year JGB at ±0.5%, compared to a previous range of ±0.25%, through fixed-rate purchase operations. 

The BoJ controls long-term interest rates in Japan by buying and selling as many 10-year JGBs as necessary to hit a targeted rate. The widened target range will allow the BoJ to take long-term interest rates higher than it could before.

However, the BoJ was quick to mention that its accommodative stance was here to stay. It added that the latest tweak was only fine-tuning to “improve market functioning and encourage a smoother formation of the entire yield curve”.

However, analysts were not unconvinced and saw the move as a precursor for monetary tightening to come.

“[BoJ Governor Haruhiko Kuroda] stressed repeatedly that today’s move is not the first step towards an exit and a further widening of the yield band is not needed. We think today’s decision has undermined the BoJ’s credibility on future policy guidance,” said Min Joo Kong, senior economist at ING.

“Despite the denials, we think Governor Kuroda is trying to pave the way for policy normalisation before stepping down. A policy shift immediately after the leadership change is difficult and could miss the opportune time to end the decades-long ultra-low policy.”

The Japanese yen (JPY) spiked on the unexpected BoJ tweak. The Asian currency added nearly 4% against the greenback on 20 December. A stronger yen is expected to help lower inflation in the nation by lowering import costs. Japan is a net energy importer that purchases nearly 90% of its energy needs.

US dollar to Japanese yen live chart

The BoJ also hinted that inflation was not a reason for the bond yield control modification as the central bank saw the recent rise in inflation rates as temporary. It added that it will continue with its quantitative and qualitative monetary easing with yield curve control for “as long as it is necessary” for maintaining the inflation target of 2% “in a stable manner.” 

The BoJ held benchmark short-term interest rates at -0.1% at its ultimate monetary policy meeting of 2022.

Japan CPI forecast for 2023 and beyond

The BoJ said in its official Japan CPI forecast from October that annual inflation in the country is expected to trend at 2.9% in 2022.

“The rate of increase is then expected to decelerate toward the middle of fiscal 2023 because the contribution of such price rises to this CPI is likely to wane. Thereafter, it is projected to accelerate again moderately on the back of improvement in the output gap and rises in medium- to long-term inflation expectations and in wage growth,” said the BoJ in its long-term Japan CPI forecast.

The central bank projected the annual inflation rate could be at 1.5%-1.8% in 2023 and 1.5%-1.9% in 2024.

In their Japan CPI predictions, economists at ING saw consumer prices in Japan accelerating at a pace of 4% in December 2022.

ING expected Japan’s inflation rates to slow from January 2023 due to a stronger yen, government subsidies on electricity, an increase in nuclear power, slow wage growth and lower global inflation following the tightened monetary conditions.

When looking at Japan inflation forecasts, it’s important to bear in mind that analysts’ forecasts can be wrong. We encourage you to always conduct your due diligence by reading the latest news, conducting technical and fundamental analyses, and studying a wide range of economic commentary. 

Remember, your decision to trade should depend on your attitude to risk, your expertise in the market, the spread of your portfolio and how comfortable you feel about losing money. You should never trade more than you can afford to lose.


What is the current CPI in Japan?

On 22 December, the Statistics of Japan reported that annual CPI inflation had accelerated at a multi-decade high pace of 3.8% during November.

Is CPI expected to rise in Japan?

The Bank of Japan (BoJ) expected inflation rates to fall by the second half of 2023. The central bank saw the annual inflation rate at 1.5%-1.8% in 2023 and 1.5%-1.9% in 2024.

What happens when CPI increases?

Rising inflation leads to lower purchasing power for consumers. Central banks across the world have been forced to increase interest rates in order to control multi-decade high inflation.

Markets in this article

157.519 USD
0.129 +0.080%

Related topics

Rate this article

Related reading

The difference between trading assets and CFDs
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.
Capital Com is an execution-only service provider. The material provided in this article is for information purposes only and should not be understood as investment advice. Any opinion that may be provided on this page does not constitute a recommendation by Capital Com or its agents and has not been prepared in accordance with the legal requirements designed to promote investment research independence. While the information in this communication, or on which this communication is based, has been obtained from sources that believes to be reliable and accurate, it has not undergone independent verification. No representation or warranty, whether expressed or implied, is made as to the accuracy or completeness of any information obtained from third parties. If you rely on the information on this page, then you do so entirely at your own risk.

Still looking for a broker you can trust?

Join the 630,000+ traders worldwide that chose to trade with

1. Create & verify your account 2. Make your first deposit 3. You’re all set. Start trading