Japan’s GDP Price Index YoY at 2.80% for November 2025 marks a slight deceleration from the previous 2.90% reading and falls short of the 3.30% consensus. This figure remains elevated relative to the 12-month average of approximately 2.90%, signaling persistent but moderating inflationary pressures. The index reflects price changes across the entire GDP basket, encompassing consumer, investment, and government spending components.

Drivers this month

• Energy prices stabilized after recent volatility, contributing 0.12 percentage points (pp).
• Core services inflation remained firm, adding 0.25 pp.
• Manufacturing goods prices softened, subtracting -0.15 pp.
• Imported inflation eased due to a stronger yen, reducing pressure by -0.10 pp.

Policy pulse

The 2.80% reading sits above the Bank of Japan’s 2% inflation target but below recent peaks, suggesting a cautious stance. The BoJ is likely to maintain its yield curve control (YCC) policy while monitoring inflation’s trajectory closely.

Market lens

Immediate reaction: The Japanese yen (JPY) appreciated 0.30% against the US dollar within the first hour post-release, reflecting market relief at the moderation in inflation. Short-term JGB yields dipped slightly, while breakeven inflation rates for 2-year maturities edged down 5 basis points.

The GDP Price Index YoY is a broad inflation gauge, complementing core CPI and PPI data. Japan’s recent inflation trajectory has been shaped by a mix of domestic demand recovery and external cost pressures. The 2.80% figure aligns with a moderate inflation environment compared to the 3.30% peak in May and June 2025.

Historical comparisons

• November 2024: 2.50%, indicating a gradual rise over the past year.
• September 2024: 3.20%, a short-lived inflation spike linked to energy costs.
• May 2025: 3.30%, the highest level in the past 18 months.

Monetary policy & financial conditions

The Bank of Japan’s ultra-loose monetary policy continues to support economic growth, with short-term rates near zero and 10-year JGB yields capped around 0.25%. The slight inflation moderation reduces immediate pressure for tightening, but persistent inflation above target keeps the door open for gradual policy normalization.

Fiscal policy & government budget

Japan’s fiscal stance remains expansionary, with ongoing stimulus measures aimed at supporting growth and structural reforms. The government’s budget deficit is projected at 5.20% of GDP for FY2025, with inflation-linked revenues providing some fiscal relief.

Market lens

Immediate reaction: JPY/USD strengthened by 0.30%, while 2-year breakeven inflation rates declined 5 basis points, signaling market expectations for a slower inflation rise ahead. The Nikkei 225 index showed a modest 0.40% gain, reflecting investor confidence in stable inflation.

Looking ahead, Japan’s inflation path will hinge on energy prices, yen exchange rates, and domestic demand recovery. The GDP Price Index YoY is expected to moderate further but remain above the BoJ’s 2% target through 2026.

Bullish scenario (20% probability)

• Global commodity prices fall sharply, easing input costs.
• Yen strengthens further, reducing import inflation.
• Domestic demand growth slows, curbing price pressures.
• GDP Price Index falls below 2.50% by mid-2026.

Base scenario (60% probability)

• Energy prices stabilize around current levels.
• Yen fluctuates moderately but remains near current strength.
• Service sector inflation remains steady.
• GDP Price Index hovers between 2.50% and 3.00% through 2026.

Bearish scenario (20% probability)

• Supply chain disruptions push commodity prices higher.
• Yen weakens, increasing import costs.
• Strong domestic demand fuels persistent inflation.
• GDP Price Index rises above 3.50%, pressuring BoJ to tighten.

Structural & long-run trends

Japan’s aging population and productivity challenges continue to weigh on potential growth and inflation dynamics. Structural reforms and technological adoption remain critical to sustaining moderate inflation and economic resilience over the next decade.

The November 2025 GDP Price Index YoY reading of 2.80% underscores a phase of moderating inflation in Japan. While the figure remains above the BoJ’s target, it signals a potential peak in inflationary pressures. Policymakers face a delicate balance between supporting growth and preventing inflation from becoming entrenched. Financial markets have responded with cautious optimism, reflected in yen strength and stable bond yields. External risks, including geopolitical tensions and commodity price volatility, remain key uncertainties.

Investors and policymakers should monitor upcoming inflation prints, currency movements, and fiscal developments closely. Japan’s inflation trajectory will shape monetary policy decisions and market sentiment well into 2026.