Japan’s business service price growth holds at 30-year high

THE rise in Japan’s business service prices held steady at a three-decade high, in a development likely to fuel speculation that the Bank of Japan (BOJ) will inch its way towards normalising policy in the coming months.

The country’s services producer price index, a gauge measuring the costs of a range of goods and services provided by businesses to other firms and government entities, rose 2.3 per cent in November from a year earlier, the BOJ said on Tuesday (Dec 26). It was the second month of 2.3 per cent gains, the fastest since April 1992 when excluding periods when there were sales tax increases. The rise was a tad slower than the consensus call for a 2.4 per cent gain.

Hotels, Internet advertising, and road transportation were some of the highest contributors to the yearly change, the data showed. Hotels in particular rose 51.8 per cent compared with the previous year on the back of a post-pandemic surge in inbound tourism and domestic demand for travel.

Japan’s main consumer inflation gauges eased in November, but service prices rose at the fastest clip since October 1993, indicating that broader inflation may be moving beyond temporary cost-push factors.

In a speech on Monday, BOJ governor Kazuo Ueda said that underlying inflation may hold steady. He noted that while some have argued prices and wages will stop growing if import price pressure wanes, he’s more optimistic. He’s hopeful “that this time around, Japan’s economy will get out of the low-inflation environment and achieve a virtuous cycle between wages and prices”, he said.

About two-thirds of economists forecast the end of negative interest rates by April, according to a Bloomberg survey. BLOOMBERG