Japan’s core consumer inflation hit a fresh 40-year high of 3.7 per cent in November as companies continued to pass on rising costs to households, data showed on Friday, a sign price hikes are spreading to broader sectors of the economy.

The increase casts doubt on the Bank of Japan’s view recent cost-push inflation will prove temporary and may keep alive market expectations the central bank will further roll back its massive stimulus next year, analysts say.

The year-on-year increase in Japan’s core consumer price index (CPI), which excludes volatile fresh food but includes energy costs, matched a median market forecast and followed a 3.6 per cent rise in October.

It was the biggest rise since a 4.0 per cent jump seen in December 1981, when inflation was still high from the impact of the 1979 oil shock and a booming economy.

The so-called “core-core” index, which strips away both fresh food and energy prices, rose 2.8 per cent in November from a year earlier, accelerating from a 2.5 per cent increase in October.

The rise in the core-core index, which the BOJ closely watches as a gauge of demand-driven inflation highlights how inflationary pressure is building in once deflation-prone Japan and could persist well into next year.

The data will likely be among key factors the BOJ will scrutinise when it produces fresh quarterly inflation forecasts at a two-day policy meeting ending on Jan. 18.

Many analysts expect the BOJ to revise up its present forecast, made in October, for core consumer inflation to slow to 1.6% next fiscal year after hitting 2.9 per cent in the current fiscal year ending in March 2023.

Japan’s economy unexpectedly shrank an annualised 0.8 per cent in the third quarter as global recession risks and higher import costs weighed on consumption and businesses.

While analysts expect growth to have picked up in the current quarter, there is uncertainty on whether wages would rise enough to compensate households for the increased cost of living and underpin consumption.

The BOJ stunned markets on Tuesday by tweaking its yield control and allowing long-term interest rates to rise more, a move market players see as a prelude to a further withdrawal of its massive stimulus programme. BOJ Governor Haruhiko Kuroda, who will see his term end in April, has said the bank had no intention to roll back stimulus as inflation was set to slow below 2 per cent next year.

Meanwhile Japan’s Nikkei share average ended lower on Friday and posted its biggest weekly drop since mid-June, with chip-related stocks leading the day’s decline in line with a slump on Wall Street overnight.

Shippers and other economically sensitive stocks also languished amid worries about continued policy tightening at the US Federal Reserve and other major central banks that could trigger a recession.

The Nikkei ended the day 1.03 per cent lower at 26,235.25, taking its weekly decline to 4.69 per cent.

However, the index closed well above the session’s lows amid some share buy back, with investors also not wanting to take extreme positions ahead of US inflation data later in the day, according to market participants.

The broader Topix lost 0.54 per cent to close at 1,897.94, while down 2.68 per cent for the week.

“Concerns that protracted monetary tightening among central banks will impede global growth is showing up in stock market moves,” Nomura strategist Maki Sawada said in a media call.

“For next week too, that should continue to cap upside.”

However, a lot of technical indicators for the Nikkei are now showing conditions are oversold, offering hope for a near-term rebound, she added.

The Nikkei has fallen in six out of the last seven trading sessions, buffetted both by the Bank of Japan’s surprise hawkish policy tweak on Tuesday and ongoing worries about the economic outlook for the United States in particular.

The Topix’s sea transport sector dropped 1.89 per cent, making it the worst performer.

Chip-making equipment giants Tokyo Electron and Advantest were the Nikkei’s biggest drags, falling 3.69 per cent and 4.49 per cent, respectively, following big losses for US peers after a glum forecast from Micron Technology Inc.

Utilities were a bright spot throughout the day though, with Kansai Electric Power surging 5.28 per cent to be the Nikkei’s best performer, after the Japanese government adopted a new policy promoting greater use of nuclear energy.