But analysts are divided on whether the Bank of Japan could raise rates this year, due to uncertainty on whether wages will increase enough to offset the hit to consumption from rising living costs and keep inflation sustainably around 2%.
The December increase in the core consumer price index , which excludes volatile fresh food but includes oil costs, matched a median market forecast and followed a 3.7% annual gain seen in November. It was the fastest annual rise since December 1981, when the index also rose 4.0%. A closer look at the data, however, shows that Japan has yet to face the risk of a wage-inflation spiral that has prodded U.S. and European central banks to raise interest rates.
"It's therefore hard to see the BOJ raising its policy rate even under a new governor and deputy governor," who will assume their posts in April and March, respectively, he said. The BOJ kept monetary policy ultra-loose on Wednesday but raised its inflation forecasts in fresh quarterly projections, as companies continued to pass on higher raw material costs to households.