Japan’s producer prices rise at fastest pace since early 2023, makes for BOJ rate hikes

Japan’s corporate goods prices picked up in June to the fastest pace since early 2023, adding to evidence of rising inflationary pressures that support the case for the Bank of Japan to keep raising interest rates.

The measure of input prices for Japanese firms rose 7.1% in June from a year earlier, and May’s increase was revised higher, the Bank of Japan reported Friday. Every month, prices climbed 0.4%, also after an upward revision to the prior month.

The figure adds to a streak of hefty readings after monthly prices rose in April by the most in 12 years and continued to climb in May shortly following the breakout of the war in Iran. Taken with other recent data that point to accessible credit conditions and strong business activity, the data reinforce BOJ policymakers’ stance toward further rate hikes.

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Traders still widely expect another rate hike by year-end, with bets growing it could come as soon as October. The yen traded around 162.36 per dollar Friday morning in Tokyo, still near the weakest level in 40 years.

The advance in the producer price index was again led by oil and gasoline, electricity and plastic. Energy costs prompted Prime Minister Sanae Takaichi to compile an extra budget to continue subsidies for households to cushion expenses stemming from the Middle East conflict.

The PPI indicates that companies are increasingly willing to pass on higher costs to customers, a sign that inflation expectations are taking hold. That was also evident in Japan’s annual wage negotiations, which concluded last week with average pay gains topping 5% for a third year — the first such streak since 1989-1991.