Wholesale Inflation Exceeds Forecasts
Figures from the Bank of Japan published on Friday showed the producer price index climbing 7.6% in August from the same month a year earlier. That outpaced the 7.4% median market estimate and came after July's revised 7.7% advance. Compared with the prior month, the gauge edged down 0.2% in August, reversing a revised 0.4% increase in July. The import price index, measured in yen, was up 24.8% year-on-year in August versus a revised 29.3% gain in July, a sign that the currency's weakness kept lifting import costs and feeding wider inflation.[S1]
BOJ Signals and Market Expectations
The data landed after the Bank of Japan shifted toward hawkish messaging, leading markets to price in an almost certain move to 1.25% from 1% when policymakers meet next week. The BOJ had raised rates in June to a 31-year high of 1%, judging that Japan was nearing a durable 2% inflation rate. It held steady in July while signaling a strong chance of a near-term hike as price pressures built. Governor Kazuo Ueda has said the central bank was watching wholesale inflation for clues on how far firms can pass costs to households.[S1]
Drivers and Outlook
Costlier fuel linked to the Middle East conflict, together with pricier imports driven by a weak yen, has added to inflationary pressure on the economy, leading the BOJ to flag the risk that inflation could overshoot its target. Economists polled by Reuters expect the BOJ to lift rates to 1.25% next week and then to 1.75% in the second quarter of 2027, earlier than previously anticipated, amid lingering concern over broadening price pressures and a soft yen.[S1]
