Japan’s consumer price growth picked up in December, adding to evidence of steady inflation just hours before the central bank announces its rate decision.

Japan's central bank has increased the cost of borrowing to its highest level in 17 years after consumer price rises accelerated in December. The move by the Bank of Japan (BOJ) to raise its short-term policy rate to "around 0.5 per cent" comes just hours after the latest economic data showed prices rose last month at the fastest pace in 16 months.

Japan's core consumer price index—which includes gasoline prices but does not include fresh food—rose 3% annually in December, reaching its highest level since August 2023, up from 2.7% in November and matching consensus.

Japan's core consumer prices rose 3.0% in December year-on-year to mark the fastest annual pace in 16 months, likely cementing a central bank rate hike later in the day and retaining bets that borrowing costs will keep rising from ultra-low levels.