Services Inflation Accelerates in August
Japan's service-sector inflation reached its highest level in more than two years during August, according to Bank of Japan data published on Monday. The Services Producer Price Index, which tracks the prices companies charge one another for services, increased 3.7% compared with a year earlier, edging up from 3.6% in July. The gain was attributed to larger freight, advertising and rental lease fees, suggesting price pressures are spreading through the broader economy. When international transportation costs are excluded, the index still rose 3.2% year-on-year.[S1]
September Rate Hike and Policy Board Vote
The inflation figure was published after the Bank of Japan lifted its benchmark rate in September, adding 25 basis points to take it from 1% to 1.25%. The Policy Board backed the move with seven votes in favor and two against. In its statement, the BOJ said it would aim for the uncollateralized overnight call rate to hover near 1.25%. That September step marked Japan's highest policy rate since 1995, extending the central bank's normalization path. The BOJ has said it will keep lifting the policy rate and fine-tune the level of monetary accommodation based on economic activity, prices and financial conditions.[S1]
Inflation Outlook and Lending Facility Adjustments
The Bank of Japan has warned that underlying inflation may run above its 2% goal as expectations for wages and prices climb. At its most recent policy gathering, the central bank also fixed the basic loan rate for its complementary lending facility at 1.5%. It adjusted lending rates tied to funds-supplying operations meant to help financial institutions in disaster-affected regions and those against pooled collateral. With service prices high and the rate increase in place, expectations are growing that the BOJ could keep tightening policy.[S1]
