Japan reported a 1.2 percent on-year rise in inflation in November, marking a fresh five-year high. The November consumer price index (CPI) was above expectations for a 1.1 percent rise in a Reuters poll and up from October's 0.9 percent rise. Core CPI - excluding food and energy prices - rose 0.6 percent on year in November, its highest level in 15 years. (Read more: Abenomics scorecard: 'A' for early initiative, 'C' for follow-through)



Japanese Prime Minister Shinzo Abe Getty Images

Abenomics – a series of policy measures unveiled under Prime Minister Shinzo Abe in April to jump start the Japanese economy – underlie the rise in inflation.

"It looks like Abenomics is working, according to headline inflation numbers. Now, we have to see whether they have to ease [with] more extreme measures to get it where they want to or can they afford to let it run for a while," said Jesper Bargmann, head of trading, Markets, Singapore at Nordea. (Read more: Verdict on Abenomics, one year on)

"The whole market is buying into Abenomics so of course, if inflation starts picking up quicker than expected, then yes it's a success but it could also mean that they might not have to go as extreme as the market expected," he added.