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Japan's inflation rose.

Japan's inflation rose

Although still mild compared with the US and Europe, inflation in Asia’s most advanced economy gained pace on the back of a historic fall in the yen against the dollar and price rises in food and electricity bills. Official statistics released yesterday showed that the core consumer price index, which does not include volatile fresh food prices, rose 3.7 per cent in November from a year earlier, exceeding the Bank of Japan’s 2 per cent target for the eighth consecutive month. Kiichi Murashima, an economist at Citigroup, echoed the BoJ’s outlook, estimating that core inflation was likely to slow sharply once government curbs on gas and electricity charges took effect. While core CPI was expected to rise 4.3 per cent in January, it was expected to slow to the 1 per cent range from August, according to the brokerage.

Prime Minister Fumio Kishida’s cabinet also approved yesterday a record budget totalling ¥114.4tn for the fiscal year from April as Japan significantly increased its defence spending to counter China’s military rise. As part of a five-year plan to expand its military capabilities, the government will increase its defence spending by 26 per cent from a year earlier to ¥6.82tn in fiscal 2023. The sharp increase in military spending, combined with a steady rise in social security costs to support a rapidly ageing society, has sparked an intense debate over how Japan will finance the budget with the country’s public debt already at more than 200 per cent of gross domestic product. As a result, the government will issue construction bonds to fund part of the increase in military spending.

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