Japan corporate service inflation rises, bolsters Bank of Japan rate-hike odds

A LEADING indicator of Japan’s service-sector inflation rose to 3.0 per cent in November, accelerating for a second straight month, data showed on Wednesday (Dec 25), 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 (BOJ), 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 per cent 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 per cent in July on the view that Japan was making steady progress towards durably achieving its 2 per cent inflation target.

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The central bank’s governor Kazuo Ueda has said the BOJ would keep raising rates if inflation remains on track to stably hit 2 per cent.

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

All respondents in a Reuters poll taken earlier this month expected the BOJ to raise rates to 0.50 per cent by the end of March. The BOJ next meets for a rate review on Jan 23 to 24, followed by another meeting on Mar 18 to 19. REUTERS