Japan wholesale inflation steady near 4%, keeps alive BOJ rate-hike chance

11:50 pm Wednesday, January 15th, 2025

By Leika Kihara

TOKYO (Reuters) -Japan’s annual wholesale inflation held steady at 3.8% in December on stubbornly high food costs, data showed on Thursday, highlighting persistent price pressures that may prod the central bank to raise interest rates next week.

The data comes in the wake of Bank of Japan Governor Kazuo Ueda’s remarks on Wednesday that the bank will debate whether to raise rates at the Jan. 23-24 meeting, signaling it will take borrowing costs higher barring any market shocks after U.S. President-elect Donald Trump takes office on Monday.

“At next week’s meeting, the board will debate whether to raise interest rates based on our new quarterly outlook report,” Ueda said in a meeting with regional bank executives on Thursday, echoing comments made the previous day.

The year-on-year rise in the corporate goods price index (CGPI), which measures the price companies charge each other for their goods and services, matched a median market forecast and followed a 3.8% annual increase in November.

The increase was driven by a 31.8% jump in agricultural goods costs as the price of rice continued to soar. Fuel costs also rose due to the phase-out of government subsidies aimed at curbing utility and gasoline prices.

An index measuring yen-based import prices rose 1.0% in December from a year earlier, the data showed, a sign the yen’s weakness continued to inflate costs for companies.

“Wholesale inflation remains under strong upward pressure,” said Takeshi Minami, chief economist at Norinchukin Research Institute, adding that Trump’s tariff, immigration and energy policies could affect Japan’s monetary policy including through exchange-rate moves.

The data on wholesale prices, which are closely watched as a leading indicator of consumer price trends, will be among factors the BOJ will scrutinise in deciding whether to raise interest rates next week.

“Import prices are likely to continue rising slightly for the time being,” which may briefly drive up wholesale inflation above 4% and put upward pressure on consumer prices, analysts at SMBC Nikko Securities wrote in a research note.

Core consumer inflation, which the BOJ bases its monetary policy decisions, hit 2.7% in November as rising food and fuel costs hit households.

Prospects of sustained wage gains and the boost to import costs from a weak yen have heightened attention within the BOJ to rising inflationary pressures that may lead to an upgrade in its price forecast this month, sources have told Reuters.

The yen rose 1% overnight and extended gains in Asia to hit 155.21 per dollar on Thursday, its strongest since Dec. 19, as Ueda’s comments prompted market players to priced in the chance of a rate hike next week.

The BOJ ended negative interest rates in March and raised its short-term rate target to 0.25% in July on the view Japan was on track to sustainably meet the bank’s 2% inflation target.

The central bank has signalled readiness to raise rates further if broadening wage hikes underpin consumption and allow companies to keep hiking prices not just for goods but services.

(Reporting by Leika Kihara; additional reporting by Yoshifumi Takemoto; Editing by Kim Coghill)