The downward revision to August makes the September print more hawkish than the headline suggests: services prices are accelerating, not just holding. That adds weight to the case for the BoJ’s Outlook Report to effectively declare underlying inflation has reached 2%, and supports December hike pricing, lending the yen modest support into Friday. Short-end JGB yields could edge higher as markets price a firmer BoJ tone. Oil-driven cost pressure from the Iran conflict remains a background inflation risk, but this data shows domestic, labour-driven pressure building too. The vote split and Ueda’s press conference remain the bigger yen catalysts.
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Earlier:
Japan September services PPI holds at 3.7% y/y, in line with forecast, before BoJ
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A quiet downward revision to August turned Japan’s in-line services print into an acceleration, and that’s the version of the story the BoJ will be reading this week.
Summary:
Japan’s services producer price index rose 3.7% y/y in September, matching expectations
August was revised down to 3.5% from 3.7%, so September marks an acceleration
The BoJ watches the index for how far firms are passing rising labour costs on to service prices
Goods producer price inflation slowed to 6.8% in September from 7.6%
The BoJ is expected to hold at 1.25% when its two-day meeting ends Friday, while signalling readiness for further hikes
Focus is on whether the Outlook Report effectively declares underlying inflation has reached 2%
Japan’s services producer price index rose 3.7% year on year in September, in line with expectations and faster than a downwardly revised 3.5% gain in August, Bank of Japan data showed on Tuesday. The pick-up points to mounting service-sector price pressure ahead of a BoJ meeting this week that is expected to leave rates on hold while signalling further tightening ahead.
The revision changes the picture. August’s reading was initially reported at 3.7%, which had suggested September would merely match the prior month. With August now at 3.5%, the September figure marks an acceleration rather than a steady pace, a more hawkish read for policymakers watching whether inflation is becoming entrenched in the domestic economy.
The index tracks the prices companies charge each other for services such as transport, communications, finance, real estate, advertising and equipment leasing. The BoJ watches it closely for evidence of how far firms are passing rising labour costs on to service prices, a central part of its case that wage growth and inflation are reinforcing each other. A faster pace suggests that pass-through is gathering momentum rather than fading.
The data contrast with the goods side, where producer price inflation slowed to 6.8% in September from 7.6% in August as fuel subsidies eased some raw-material costs. Services prices rising while goods inflation slows suggests domestic, labour-driven pressure is taking over from imported costs as the main driver.
The BoJ concludes a two-day meeting on Friday and is expected to keep its policy rate at 1.25%, after raising it in September, while signalling it is ready to continue lifting borrowing costs as price pressures build. Most economists expect the next hike in December. The key focus is whether the bank’s updated Outlook Report effectively declares that underlying inflation has reached its 2% target, a step it has never taken since adopting the goal in 2013.
Today’s acceleration strengthens the case for that declaration and makes it harder for the board members who opposed September’s hike to argue for easier policy.
This article was written by Eamonn Sheridan at investinglive.com.
