Global Market: Japan wholesale inflation stays elevated, bolstering September rate hike bets

Japan’s annual wholesale inflation remained elevated in July, underscoring broadening price pressures and strengthening expectations that the Bank of Japan (BOJ) could raise interest rates at its September policy meeting, according to a report by Reuters.

The producer price index (PPI), which measures the prices companies charge each other for goods and services, rose 7.2% in July from a year earlier, BOJ data showed on Thursday. The increase was slightly below the 7.4% rise forecast by economists but remained close to the 7.3% gain recorded in June, Reuters reported.

On a month-on-month basis, the index increased 0.1% in July, slowing from a revised 0.5% rise in June.


The data comes as the BOJ has adopted a more hawkish tone on inflation. A summary of opinions from its July meeting showed that some policymakers favored a faster pace of interest rate increases to contain mounting inflation risks.

The report stated that the latest wholesale inflation figures are likely to reinforce market expectations of a September rate hike, particularly as the central bank remains concerned about the impact of higher import costs and a weaker yen.

Price pressures remained broad-based in July. Nonferrous metals prices jumped 40.6% from a year earlier, accelerating from a 39.3% increase in June. Chemical product prices rose 12.9%, following a 15.1% gain in the previous month.

The yen-based import price index increased 29.1% year-on-year in July, easing slightly from a 30.1% rise in June. The elevated reading indicates that the weaker yen continues to increase the cost of imported goods and raw materials, potentially feeding through to consumer prices, Reuters reported.

The BOJ has also pointed to stronger demand linked to the artificial intelligence boom, elevated global metal prices and higher raw-material costs associated with tensions in the Middle East as factors contributing to rising wholesale prices.

The latest figures could raise concerns that higher input costs will increasingly be passed on to households. Consumer inflation has remained below the BOJ’s 2% target in recent months, partly because government subsidies have helped reduce fuel costs.

Core inflation in Tokyo, considered a leading indicator of nationwide price trends, accelerated to 1.9% in July from the previous month, suggesting that businesses are gradually passing higher costs on to consumers.

The BOJ kept interest rates unchanged at its July meeting but warned that underlying inflation could exceed its target as price pressures build. Its July report also identified the recent acceleration in wholesale inflation as an important indicator of increasing inflation risks that could warrant further monetary tightening, as per the Reuters report.

Market expectations currently point to a possible increase in the BOJ’s policy rate to 1.25% from 1% at its September 17-18 meeting. The report stated that recent developments, including Japan-U.S. currency intervention and comments by U.S. Treasury Secretary Scott Bessent favoring an earlier Japanese rate increase, have further strengthened expectations for a September move.

A renewed rise in crude oil prices caused by heightened Middle East tensions and the possibility of further yen weakness could add to import costs in the coming months, increasing pressure on the BOJ to continue normalising monetary policy.