Japan’s annual wholesale inflation remained elevated at 7.2% in July, according to official data released Thursday, reinforcing market expectations of a potential Bank of Japan (BOJ) interest rate hike in September.
The Producer Price Index (PPI), which measures prices at the wholesale level, rose 7.2% year-on-year in July, slightly below the 7.4% forecast by economists polled by Reuters. The reading follows a revised 7.3% increase in June, indicating persistent price pressures across the economy. On a month-on-month basis, the index edged up 0.1%, a slower pace than the 0.5% rise recorded in June.
The yen-based import price index climbed 29.1% in July, down from a 30.1% surge in June, reflecting the continued impact of the yen’s weakness on import costs. The yen had approached multi-decade lows against the U.S. dollar in late July before a coordinated intervention by Tokyo and Washington temporarily strengthened the currency, though it has since lost over 50% of the intervention-led gains.
Electricity prices were the largest contributor to the PPI in July, adding 0.23 percentage points to the increase compared to June. This was partly offset by declines in energy and chemical prices. Meanwhile, nonferrous metals prices surged 40.6% year-on-year, up from a 39.3% spike in June, while chemical products rose 12.9% after a 15.1% gain in June.
The BOJ maintained its policy stance unchanged at its July meeting but warned that underlying inflation could exceed its 2% target due to mounting price pressures. The central bank also signaled that future discussions would focus on upside risks to prices, increasing the likelihood of a rate hike as early as September.
Economists cited renewed geopolitical tensions in the Middle East—which have pushed up crude oil prices—as a key factor expected to re-accelerate wholesale inflation. Masato Koike, senior economist at Sompo Institute Plus, noted that further yen depreciation could also lift import prices, reinforcing expectations for a September rate hike.
The BOJ’s July meeting minutes revealed growing hawkish sentiment among policymakers, with some arguing for a faster pace of rate hikes to counter inflation risks. The central bank has faced increasing pressure to tighten monetary policy as inflation remains stubbornly high, despite earlier accommodative measures aimed at stimulating growth.
The data underscores the challenges Japan faces in balancing inflation control with economic stability, particularly as global commodity prices remain volatile and the yen’s weakness continues to inflate import costs.