Japan’s inflation in January climbed 4% year on year, hitting its highest level since January 2023, further strengthening the case for rate hikes by the country’s central bank.

The core inflation rate — which excludes prices of fresh food — rose to 3.2% from 3% in the prior month and beat economists’ expectations of 3.1%, according to a Reuters poll. This figure was the highest since June 2023.

The so called “core-core” inflation rate, which strips out prices of both fresh food and energy and is closely monitored by the BOJ, climbed slightly to 2.5% from 2.4% in the month before.

The headline inflation rate, which had come in at 3.6% in December, has remained above the Bank of Japan’s 2% target for 34 straight months.

Immediately after the data release, the yen strengthened 0.15% to trade at 149.39 against the dollar.

The inflation figures boost the case for rate hikes by the BOJ, which deliberated tightening rates at its January meeting, with its summary of opinions warning of inflation risks and weakness in the yen.

“It will be necessary for the Bank to adjust the degree of monetary accommodation from the viewpoint of avoiding the yen’s depreciation and the overheating of financial activities, both of which appear to be due to excessively high expectations of continued monetary easing,” the BOJ summary read.

The data also comes after the country’s GDP growth beat expectations on a quarter-on-quarter and annualized basis, rising 0.7% and 2.8% respectively.

However, full-year GDP growth for 2024 slowed to 0.1%, a sharp fall from the 1.5% growth seen in 2023.

In a note before the inflation data release, the Commonwealth Bank of Australia said the case for an earlier rate hike has strengthened in recent weeks because of strong Japanese economic data.

Bank of America analysts wrote in a note earlier this week that the BOJ was also “likely growing more concerned” about inflation risks, which will raise the possibility of earlier hikes and a higher terminal rate.

The analysts also forecast that the BOJ will hike in June and December, and raise their terminal rate forecast to 1.5% with an additional two hikes in June 2026 and the first quarter of 2027.