Japan Service Producer Prices Rise 3.6%, Strengthening Case for BOJ Rate Hike in September
Summary
- July’s corporate services price index in Japan rose 3.6% from a year earlier, strengthening expectations for a benchmark interest-rate hike in September.
- In particular, marine freight charges surged 67.4%, adding to the view that inflation pressures are proving stronger than expected.
- With the OIS market pricing in about an 80% chance of a September rate hike, investors are focused on upcoming remarks from senior BOJ officials.
Forecast Trend Report by Period
A sharper rise in prices for services traded between Japanese companies last month is strengthening expectations that the Bank of Japan will raise its benchmark interest rate in September.
According to Bloomberg on Aug. 26, the BOJ’s corporate services price index rose 3.6% in July from a year earlier. That marked the fastest annual increase since May.
Marine freight charges surged 67.4% from a year earlier, the biggest gain since comparable data began in 1986. Shipping costs rose sharply as companies turned to more expensive alternative routes amid the prolonged conflict in the Middle East.
Earlier inflation data was also revised higher. The BOJ raised April’s corporate services price growth to 3.6% from an initial 3.0% and revised all readings for April through June upward. That has reinforced the view that price pressures in Japan’s service sector have remained stronger than expected.
Markets are placing greater weight on the possibility that the BOJ will deliver another rate increase at its Sept. 18 monetary policy meeting. Overnight index swaps imply about an 80% chance of a September hike.
Investors are also watching comments from senior BOJ officials due from Aug. 27. Deputy Governor Ryozo Himino is scheduled to speak first, followed by other officials. Traders will be looking for clues on whether the BOJ will tolerate market expectations for a September rate increase or signal an effort to curb them.
