By Megumi Fujikawa
TOKYO–Hopes that Japan’s central bank could soon raise interest rates got a lift on Friday from data showing broad strength in the economy.
Resilient factory activity and consumption despite headwinds from tariffs and inflation suggest that conditions for the Bank of Japan to resume monetary tightening are being met.
Tokyo inflation figures–considered a leading indicator of nationwide trends–showed that consumer prices excluding fresh food climbed 2.8% in November from a year earlier. That matched the pace seen in October, and was just a touch above the 2.7% increase expected in a poll of economists by data provider Quick.
Energy prices in the city rose 2.6% as government subsidies expired, while food inflation remained strong.
Persistent inflation, plus a tight labor market, suggest that “the Bank of Japan will resume its tightening cycle over the next couple of months,” said Marcel Thieliant, head of Asia-Pacific at Capital Economics.
Another reason to raise rates comes from the yen, which has weakened rapidly over the past weeks, stoking concerns over rising import prices.
There is only one more chance for the BOJ to act this year, at its Dec. 18-19 meeting. Economists are split on whether it will move then or during the first month of 2026, but most think a rate hike is more or less a done deal.
Separate government data showed consumption is holding up against higher prices, with retail sales rising 1.7% on year in October. The rollout of Prime Minister Sanae Takaichi’s economic stimulus package, aimed at easing the strain of rising living costs, could boost consumer appetite.
Though inflation has been above target for some time, the Bank of Japan has maintained its policy rate at 0.5% since its last hike in January as it waits to see the full impact of U.S. tariffs on the Japanese economy. So far, the duties seem to be having less of a negative impact on manufacturers than initially feared.
Industrial production increased 1.4% in October from the previous month, government data showed Friday. That was a slowdown from September’s 2.6% rise, but strongly beat consensus expectations for a 0.6% decline.
Although corporate profits have been hit by 15% tariffs set by the Trump administration, policymakers expect tight labor conditions to keep wage-hike momentum among Japanese businesses intact. Japan’s jobless rate stood at 2.6% in October, according to separate data released Friday.
Still, concerns about tariffs and a global economic slowdown have kept Japanese companies cautious about investing, casting uncertainty over the production outlook.
Firms expect output to decrease by 1.2% in November and 2.0% in December, the government data showed.
Economists say there’s cause to be downbeat about the longer term effects of U.S. trade policy on Japanese exports.
For Stefan Angrick at Moody’s Analytics, October’s better-than-expected production print doesn’t change the fact that the outlook for Japan’s manufacturers remains challenging. Higher U.S. tariffs are eating into shipments, and Chinese competitors are grabbing market share from Japanese machinery companies and carmakers, he wrote in a note.
“Although the impact of the Trump tariffs hasn’t been as severe as initially expected, it is likely to gradually seep into the economy over time and suppress production activities,” said Takeshi Minami, an economist at the Norinchukin Research Institute.
Write to Megumi Fujikawa at megumi.fujikawa@wsj.com
(END) Dow Jones Newswires
November 27, 2025 22:02 ET (03:02 GMT)
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