Japan’s wholesale inflation stays elevated in August, boosts case for rate hike

TOKYO, Sept 11 - Japan's wholesale inflation remained high in August, data released on Friday suggesting mounting price pressures that bolster the case for the Bank of Japan to raise interest rates this month. Following recent hawkish remarks from the central bank, markets had nearly priced in a rate increase to 1.25% from 1% at the upcoming policy meeting.

The producer price index climbed 7.6% in August compared to a year ago, exceeding market expectations of a 7.4% rise. This increase followed a revised 7.7% gain in July. On a month-over-month basis, the index fell 0.2% in August, down from a revised 0.4% increase in July. The yen-based import price index surged 24.8% in August from a year earlier, after a revised 29.3% jump in July, indicating that the currency's depreciation during the month boosted import costs and contributed to overall inflation.

Factors such as rising fuel prices due to the Middle East conflict and higher import prices stemming from a weak yen have exacerbated price pressures in the economy, prompting the BOJ to warn of the risk of inflation overshooting. BOJ Governor Kazuo Ueda has stated that the central bank is closely monitoring wholesale inflation for signals on how companies might pass costs onto consumers.

In June, the BOJ raised rates to a 31-year high of 1% due to the expectation that Japan was nearing its 2% inflation target. While rates remained unchanged in July, the central bank indicated a high likelihood of a near-term hike owing to growing price pressures. According to Reuters' surveyed analysts, the BOJ is expected to raise rates to 1.25% next week and then to 1.75% in the second quarter of 2027, earlier than previously anticipated, driven by persistent concerns over widening price pressures and a weakening yen.