By Megumi Fujikawa
TOKYO--A pickup in consumer prices in Tokyo, retail sales and industrial production signal steady economic improvement ahead of the Bank of Japan's closely watched meeting in December.
Consumer inflation, excluding fresh food, in the Tokyo metropolitan area accelerated for the first time in three months in November, according to a government release Friday. They rose 2.2% compared with the same period a year earlier, up from October's 1.8% gain.
The reading was also a little higher than many economists had expected. Tokyo prices are considered an early indicator of nationwide trends, suggesting that inflation is developing in line with the central bank's expectations.
Energy prices increased 7.4% in November due to the fading effects of government energy subsidies. Service prices--which BOJ Governor Kazuo Ueda keeps a close eye on--rose 0.9% after October's 0.8% increase.
The pickup in inflation bolsters arguments for an imminent interest-rate increase, and that pushed the yen higher Friday morning in Tokyo.
The yen strengthened to 149.85 against the dollar from around 151.50 yen earlier in the session. Risk aversion likely also contributed to the yen's strength, as its considered to be a safe-haven currency.
Some economists and investors expect the BOJ to raise interest rates at its next meeting in late December, but others see a January hike as more likely.
The Tokyo CPI print backs Capital Economics' long-held call for a December increase.
The research firm figures the Tokyo result means national inflation, excluding fresh food and energy costs, also likely rose above the BOJ's 2% target in November.
"And with the yen set to remain weak for longer and the upcoming Shunto [wage negotiations] set to result in another large pay hike, we expect inflation excluding fresh food and energy to remain above 2% for most of next year," said Marcel Thieliant, head of Asia-Pacific at Capital Economics.
Separately, retail sales numbers released Friday also suggested improved consumer demand--another factor the BOJ watches as it seeks to create a virtuous cycle of spending and price growth.
Even though prices have been rising, October's retail sales rose 1.6% on year, almost doubling September's 0.7% increase.
Industrial production added to the good news as the government said October's output rose 3.0% from the previous month, sharply higher from September's 1.6% rise.
But some economists think the BOJ could hold off tightening further until next year, when there is more clarity on U.S. policies and their impact on global trade.
The BOJ governor has said the bank would incorporate the effects of U.S. policies into economic outlook as soon as president-elect Donald Trump announces details.
For now, economists at UOB still think the BOJ will increase its policy rate to 0.5% next month, which they believe will be the terminal rate.
Increased consumption and inflation continue to affirm underlying price trends that align with the BOJ's 2% objective, which should boost the central bank's confidence to hike once more in December, if not January, economist Lee Sue Ann said in a note.
But heading into 2025, a potential softening of economic growth and the uncertain path of inflation due to Trump's policies may be enough to put Ueda into a prolonged pause, UOB said.
Write to Megumi Fujikawa at megumi.fujikawa@wsj.com
(END) Dow Jones Newswires
11-28-24 2333ET
