Eurozone inflation rises; Tokyo CPI boosts BoJ rate speculation

Many trading instruments will have an early close today, with notably low volatility observed during the Asian and European sessions.

Eurozone Inflation Climbs to 2.3%

Annual inflation in the Eurozone rose to 2.3% in November, marking its second consecutive increase and aligning with market expectations. This uptick stems largely from base effects, as energy price drops seen last year are no longer skewing annual comparisons. Energy prices fell at a slower rate, while inflation in services continued to ease.

Expectations for Eurozone inflation over the next 12 months ticked up to 2.5% in October 2024, reversing nine months of declines. This marked the first rise since early 2023 and came after September's reading of 2.4%, the lowest since 2021. Long-term inflation expectations held steady at 2.1%, their lowest level since February 2022. Market uncertainty surrounding near-term inflation remained unchanged at its lowest point since February 2022, suggesting growing confidence in the outlook.

Tokyo Inflation Data Boosts Odds of BoJ Rate Hike

Tokyo’s November consumer price index (CPI) figures revealed mounting inflationary pressures, amplifying speculation that the Bank of Japan (BoJ) may shift to a tighter monetary stance.

Core CPI for Tokyo, which excludes fresh food, accelerated to 2.2% year-over-year, outpacing expectations of 2.1% and up from October's 1.8%. Core-core CPI, stripping out both food and energy, edged up from 1.8% to 1.9%. Services inflation—a gauge of domestic demand strength—advanced slightly to 0.9% from 0.8%.

Headline CPI surged to 2.6% from 1.8%, signaling broadening price pressures. Markets have responded by pricing in a more than 60% probability of a BoJ rate hike at its December meeting, with over 80% of economists anticipating policy adjustments by January. With the BoJ’s current policy rate at 0.25%, the likelihood of action within the next two months appears high.