Japan September Producer Inflation Slows to 6.8%, Easing Pressure for BOJ Rate Hike This Month
Summary
- September producer price index (PPI) inflation slowed to 6.8%, fueling expectations that the Bank of Japan will not rush an additional rate hike this month.
- Even though producer-price inflation slowed, it remains high enough that it is difficult to say the BOJ’s rate-hike stance has ended.
- In the overnight index swap market, investors are pricing in a strong possibility of one additional rate hike by January next year, underscoring market expectations for a further BOJ rate increase.
Forecast Trend Report by Period
Japan’s producer-price inflation slowed in September, reinforcing expectations that the Bank of Japan will not rush to raise interest rates again this month.
Bloomberg reported on October 12 that the BOJ said its producer price index rose 6.8% in September from a year earlier. That was 0.8 percentage point lower than August’s 7.6% increase, marking the biggest slowdown since May 2025. On a month-over-month basis, the index fell 0.3%, matching the decline in August.
The easing in producer-price inflation suggests some relief in companies’ raw-material procurement costs. Prices for agricultural, forestry and fishery products fell 13.3% from a year earlier, partly because of lower rice prices. That reflected a correction after rice prices surged in the spring of last year. Price growth for petroleum and coal products also slowed to 11.5%, helped by government subsidies.
The data have lowered the chances of a consecutive rate increase at the BOJ’s monetary policy meeting on October 30. The central bank raised rates last month, and the latest inflation reading reduced the urgency for additional tightening. Still, producer-price inflation remains elevated, making it hard to conclude that the BOJ’s rate-hike cycle is over.
Markets continue to price in another BOJ increase. Overnight index swap pricing suggests investors see a high probability of one more rate hike by January next year, and many expect a move in December. With conflict in the Middle East keeping pressure on energy and raw-material costs, companies are also continuing to pass higher costs on to product prices.
Meanwhile, the BOJ’s quarterly Tankan business survey released earlier this month showed companies’ long-term inflation expectations at 2.5%. That was slightly below the record 2.6% in the previous survey. Inflation expectations have eased somewhat but remain high, indicating the BOJ’s next policy moves will depend on corporate cost pressures and the path of prices.
