Japan's consumer price index (CPI) in December edged higher and remained above the Bank of Japan's inflation target, possibly raising challenges for the nation's central bank.

Japan's CPI rose 3.6% in December on year, while the much-quoted CPI-core, that strips out food bills, rose 3% in the same time frame, reported Statistics Japan on Friday. The CPI core-core, that also strips out fuel bills, rose 2.4% on year in December.

The Bank of Japan has a 2% annual target on the nation's CPI-core index.

Japan consumers faced higher food bills in December, up 6.4% on year, and higher utility bills, up 14.5% on year as certain government subsidies were phased out.

In contrast, residential rents rose a modest 0.9% on year in December, while information and communication charges, generally for smartphone use, fell 0.4% on year.

On Friday last week, the Bank of Japan raised its key policy interest rate to 0.50% from 0.25%, citing the nation's inflation rate but issuing projections for slightly better economic growth in fiscal 2025.

After a modest 0.5% expansion of the nation's gross domestic product (GDP) in fiscal 2024 ended this coming April 1, the Bank of Japan forecast a 1% expansion in Japan's GDP in fiscal years 2025 and 2026.

The central bank also forecast inflation would slowly recede to back within the Bank of Japan's 2.0% target within fiscal 2026.

The Bank of Japan noted that recent wage settlements point to higher pay for Japan's workers, which could result in stronger consumption and a more robust overall economy.