The miss trims some urgency from the hike narrative, but an annual pace near 7% and surging import costs leave the case for tightening intact, keeping Japanese yields and BOJ pricing sensitive to any hawkish signals. The weak yen is the key amplifier: with oil prices elevated by the Iran war, every leg lower in the currency raises the yen cost of energy and feeds back into pipeline inflation. A rate hike that narrows the gap with other central banks could support the yen and ease that pressure, which is part of the case for acting sooner. Traders will watch whether firms keep passing higher costs through to consumer prices, the step the BOJ watches most closely.
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Japan’s factory-gate inflation came in softer than feared, but with the weak yen pushing import costs up by a quarter, the pressure behind a BOJ hike has not gone away.
Summary:
Japan’s corporate goods price index rose 6.8% year on year in September, below the 7.6% forecast and August’s 7.6% gain, but still at an elevated level
On the month, prices fell 0.3%, against expectations for a 0.5% rise, following a 0.2% decline in August
Companies continued to pass on higher fuel and chemical costs to each other
The yen-based import price index jumped 24.5% year on year, showing the weak currency is still pushing up the cost of raw material imports
The data keep alive market expectations of a near-term Bank of Japan rate hike, with the board due to publish new growth and inflation forecasts at this month’s meeting
Japan’s wholesale prices rose 6.8% in the year to September as companies passed on higher fuel and chemical costs, data released by the Bank of Japan showed on Tuesday, keeping inflationary pressure elevated and market expectations of a near-term interest rate hike alive.
The annual increase in the corporate goods price index, which tracks the prices companies charge each other for goods and services, fell short of the median market forecast of 7.6% and was below August’s 7.6% rise. On a monthly basis, prices fell 0.3%, against expectations for a 0.5% increase, after a 0.2% drop in August.
The headline miss offers the central bank only limited comfort. An annual pace near 7% remains well above levels consistent with the BOJ’s price goals, and the details point to continued cost pressure feeding through supply chains.
The clearest sign of that pressure came from import costs. The yen-based import price index surged 24.5% from a year earlier, showing that the currency’s weakness continues to inflate the cost of raw materials Japan brings in from abroad. With energy prices high, a soft yen magnifies the impact, raising the domestic cost of fuel and other inputs that companies then pass on to customers.
The data will be among the factors the BOJ board weighs when it produces fresh quarterly growth and inflation forecasts at its policy meeting later this month. Wholesale prices tend to lead consumer inflation, as firms gradually pass higher input costs on to households, which makes the pipeline readings an important guide for policymakers assessing whether inflation is becoming entrenched.
Markets will now focus on whether the BOJ uses its upcoming meeting to signal or deliver a further tightening step. A move that narrowed the interest rate gap with other major economies could help support the yen, easing one of the main sources of imported inflation. For now, the September figures suggest the softer headline reading has not changed the underlying picture of strong cost pressure.
This article was written by Eamonn Sheridan at investinglive.com.
