Japan Corporate Service Inflation Rises, Bolsters BOJ Rate-Hike Odds

Reuters

11:30 JST, December 25, 2024

TOKYO (Reuters) — A leading indicator of Japan’s service-sector inflation rose to 3.0% in November, accelerating for a second straight month, data showed on Wednesday, backing up the central bank’s view that rising wages are prodding more firms to pass on higher costs.

Service-sector inflation is being closely watched by the Bank of Japan, which compiled Wednesday’s data, for clues on whether demand-driven price gains are broadening enough to justify raising interest rates further.

The November year-on-year gain in the services producer price index, which measures the price companies charge each other for services, accelerated from a 2.9% gain in October.

The index, at 109.1, marked the highest level since March 1995.

The increase was driven by higher prices for a variety of services, ranging from accommodation to machinery repair to construction.

The BOJ ended negative interest rates in March and raised its short-term policy rate to 0.25% in July on the view that Japan was making steady progress towards durably achieving its 2% inflation target.

Governor Kazuo Ueda has said the BOJ would keep raising rates if inflation remains on track to stably hit 2%.

While the BOJ kept rates steady in December, Ueda said he would scrutinize data on next year’s wage prospects in judging how soon to push up borrowing costs.