Japan’s leading indicator of service-sector inflation rose to 3.0% in November, accelerating for the second consecutive month, data released on Wednesday showed. This supports the Bank of Japan’s (BOJ) view that rising wages are encouraging more firms to pass on higher costs.
The Importance of Service Inflation for BOJ
Service-sector inflation is closely monitored by the BOJ to assess whether demand-driven price increases are broadening enough to warrant further interest rate hikes.
Data Highlights
- Year-on-Year Growth: The Services Producer Price Index (PPI), which measures prices companies charge each other for services, rose 3.0% in November, up from a 2.9% increase in October.
- Index Level: The index reached 109.1, its highest level since March 1995.
- Driving Factors: The increase was driven by higher prices for various services, including accommodation, machinery repair, and construction.
BOJ Actions and Outlook
The BOJ ended its negative interest rate policy in March and raised its short-term policy rate to 0.25% in July, citing steady progress toward Japan’s 2% inflation target.
Governor’s Statement:
Kazuo Ueda, the BOJ Governor, stated that the central bank would continue to raise rates if inflation remains on track to sustainably achieve the 2% target.
Market Expectations
- December Rate Stability: The BOJ kept rates steady in December.
- Rate Hike Forecast: All respondents in a Reuters poll expected the BOJ to raise rates to 0.50% by the end of March.
- Upcoming Meetings: The BOJ’s next rate review meetings are scheduled for January 23-24 and March 18-19.
Disclaimer: This article is for informational purposes only and should not be considered financial or investment advice. Please consult professionals for financial decision-making.
