Many analysts expect Japan’s economy to sustain a moderate recovery and help keep inflation around the central bank’s 2% target. — Reuters
TOKYO: A leading indicator of Japan’s services sector inflation held near 3% in October, data shows, offering further evidence that conditions for another near-term interest rate hike by the Bank of Japan (BoJ) are falling into place.
While uncertainty over US President-elect Donald Trump’s policies clouds the outlook, many analysts expect Japan’s economy to sustain a moderate recovery and help keep inflation around the central bank’s 2% target.
Japan’s services producer price index, which measures the price companies charge each other for services, rose 2.9% in October from a year earlier, BoJ data showed, accelerating from a 2.8% gain in September.
The increase was driven by services ranging from machinery repairs, accommodation and construction work, reinforcing the central bank’s view that rising wages are prodding more firms to pass on higher labour costs through price hikes.
The data will be among factors the BoJ will scrutinise at its next policy meeting in December, when some analysts expect it to hike interest rates from the current 0.25%.
“Services sector inflation is broadening, though the momentum isn’t as strong as the BoJ suggests,” said former top BoJ economist Seisaku Kameda, who is now executive economist at Sompo Institute Plus.
“Having said that, the BoJ must be satisfied with the way wages and services inflation are rising,” he said, projecting the BoJ would likely hike rates in December.
Services sector inflation is being closely watched by the BoJ for clues on whether demand-driven price gains are broadening enough to raising interest rates further.
The October data has drawn particular attention as many Japanese firms typically charge prices for services biannually in April, which is the start of the financial year, and October.
Yesterday’s data followed consumer inflation figures released last week that showed the price companies charged households for services rose 1.5% in October from a year earlier, accelerating from a 1.3% gain in September.
BoJ governor Kazuo Ueda has said the economy was progressing towards sustained wages-driven inflation that could allow the central bank to raise still-low rates again. — Reuters
