Japan Service Producer Prices Rise 3.6%, Strengthening Case for BOJ Rate Hike in September

Rising service prices between Japanese companies accelerated last month, reinforcing expectations that the Bank of Japan may raise its benchmark interest rate in September.

Bloomberg reported on Aug. 26 that the BOJ's corporate services producer price index rose 3.6% in July from a year earlier, the fastest increase since May.

Marine freight charges surged 67.4% from a year earlier, marking the biggest increase since comparable data began in 1986. The sharp gain reflects higher shipping costs as companies have turned to more expensive alternative routes amid the prolonged conflict in the Middle East.

Earlier inflation readings were also revised upward. The BOJ raised April's corporate service price increase to 3.6% from an initially reported 3.0% and revised all monthly figures from April through June higher. The changes underscore stronger-than-expected price pressure in Japan's services sector.

Markets are increasingly betting the BOJ will deliver another rate hike at its Sept. 18 monetary policy meeting. The probability of a September increase implied by the overnight index swap market is about 80%.

Investors are also watching public remarks by senior BOJ officials starting Aug. 27. Deputy Governor Ryozo Himino is scheduled to speak first, and traders will be looking for signals on whether the BOJ will accept market expectations for a September rate hike or try to temper them.