Japan’s core consumer price index (CPI) for October was higher than expected, with a year-on-year increase of 2.3%. This is slightly more than market expectations of 2.2%, but lower than September’s 2.4%. The increase is mainly due to the base period effect of last year’s government cuts in fuel subsidies.
Inflation remains above the Bank of Japan’s 2% target, which could lead to a rate hike in December. The Bank of Japan is set to hold an interest rate decision meeting on December 18th and 19th, and a survey by the London Stock Exchange shows that 55% of economists predict a 25 basis point hike. If the Bank of Japan does raise interest rates, it could trigger a market collapse due to unwinding of the yen carry trade, which involves borrowing yen at low interest rates to invest in high-yield assets.
The withdrawal of funds due to rising borrowing costs and yen appreciation could cause a market crash.
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