Japan’s inflation surged past expectations in January, rising 3.2%—the highest since June 2023—driven by soaring food prices, including a record 70.9% jump in rice costs, reinforcing the Bank of Japan’s rate hike path.

Overall inflation accelerated to 4%, the first time in two years, as fresh food prices climbed at the fastest pace in two decades, with vegetable prices soaring.

Japan now has the highest inflation among G7 nations, reinforcing expectations that the Bank of Japan will continue raising interest rates.

The BOJ hiked its policy rate to 0.5% last month, its highest level since the global financial crisis, with traders speculating on another increase this year.

Inflation remains a major concern for Prime Minister Shigeru Ishiba’s government ahead of the national election by July, as household burdens rise.

With real wages growing just 0.5%, consumer spending remains weak, making upcoming wage negotiations in March crucial for sustaining economic growth.

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