Expectations of Rising Prices in Japan

By Leika Kihara and Takahiko Wada

TOKYO (Reuters) – Nearly 86% of Japanese households expect prices to rise a year from now, according to a quarterly survey conducted on Thursday. This reflects increasing inflation expectations that could support the central bank's case for additional interest rate hikes.

The ratio of households anticipating price increases a year from now was 85.6% in September, a slight decrease from 87.5% in the previous survey conducted three months earlier, as reported by the Bank of Japan (BOJ).

Looking ahead five years, 83.6% of households expect prices to rise, up from 82.0% in June's survey.

Rising living costs have prompted consumers to spend more on food and daily necessities, which topped the list of items for increased spending compared to the previous year. Conversely, the survey revealed that dining out, clothing, and travel were the top three areas where households reduced their expenditures.

After ending negative interest rates in March, the BOJ raised short-term borrowing costs to 0.25%, believing that Japan is making progress toward sustainably achieving its 2% inflation target.

As of August, Japan's core consumer inflation reached 2.8%, consistently exceeding the BOJ's 2% target for over two years, thereby maintaining expectations for further rate hikes.