The data will likely keep alive market expectations that the Bank of Japan (BOJ) will soon end its yield control policy and allow interest rates to rise more, analysts say.
The increase in the core consumer price index (CPI), which excludes volatile fresh food but includes oil costs, matched a median market forecast and followed a 3.7% annual gain seen in November.
The annual rise in core CPI thus exceeded the BOJ’s 2% target for a ninth straight month.
“Inflationary pressure is heightening quite a bit, with price hikes broadening beyond those for food and fuel,” said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute.
“Companies aren’t that cautious about raising prices any more. We might see inflation stay above the BOJ’s 2% target well into autumn this year,” he said.
Core-core CPI, which strips away both fresh food and energy costs, was 3.0% higher in December than a year earlier, accelerating from a 2.8% gain seen in November.
The BOJ kept monetary policy ultra-loose on Wednesday but raised its inflation forecasts in fresh quarterly projections, as companies continued to pass on higher raw material costs to households.
Many market players expect the central bank to phase out the yield curve control, a policy under which it caps long-term interest rates around zero, when dovish governor Haruhiko Kuroda’s second, five-year term ends in April.