Producer inflation in Japan popped above 10 percent in December as utility charges stood over 50 percent above year-earlier levels and firms continued passing higher costs on to customers, although the yen's slight rebound has lowered import costs and global commodities markets have eased, data released Monday by the Bank of Japan showed.

The BoJ board is expected to revise up its medium-term inflation forecasts in its quarterly Outlook Report due Wednesday after the bank's two-day policy meeting, but unlikely to revamp its long-held yield curve control framework until the second five-year term of Governor Haruhiko Kuroda, an advocate for a reflationary policy mix, ends on April 8.

At its last meeting on Dec. 19-20, the board decided unanimously to allow the yield on the 10-year Japanese government bonds to rise to 0.5 percent from 0.25 percent amid upward pressures arising from aggressive tightening by other major central banks, hoping to revive some of the paralyzed market functions under its yield curve control regime.

At the same time, the board voted unanimously to maintain its basic monetary easing stance, keeping its zero to slightly negative interest rate targets along the yield curve and large asset purchases in order to support economic recovery from the pandemic-triggered slump and anchor inflation around its 2 percent price stability target.

The Econoday Consensus Divergence Index stood at minus 5, below zero, which indicates the Japanese economy is performing worse than expected after outperforming earlier this year. Excluding the impact of inflation, the index was at minus 13.

The corporate goods price index (CGPI) jumped 10.2 percent on the year in December, coming in well above the median economist forecast of a 9.5 percent rise (forecasts ranged from 9.1 percent to 9.9 percent gains). It was the 22nd consecutive gain following a 9.7 percent rise (revised up from 9.3%) in November and a revised 9.6 percent gain in October. The annual rate in September at 10.3 percent remains a 41-year high. It is the highest since December 1980, when the index rose 10.4 percent for a 14th straight month of double-digit percentage gains in the wake of the 1979 oil crisis triggered by the Iranian Revolution.

In 2022, the domestic CGPI rose 9.7 percent after rising 4.6 percent in 2021.

The depreciation of the yen continues exerting upward pressures on already high import costs at producer levels, which also marked the 22nd straight year-over-year rise. The increase in yen terms was 22.8 percent in December (a revised 28.0 percent in November), much higher than 8.1 percent (a revised 8.5 percent previously) in contract currencies. However, the pace in yen-based price increase continued to slow from a 49.2 percent surge in July 2022. The dollar depreciated 5.2 percent against the yen on the month in December after falling 3.2 percent in November and rising 2.9 percent in October, BOJ data showed.

The producer costs for electric power, gas and water -- the category that is also driving consumer prices higher -- surged 52.3 percent on the year in December, with the pace of increase accelerating further from 50.5 percent in November. Iron and steel maintained a double-digit percentage gain but posted a slower increase of 20.9 percent after rising 21.9 percent the previous month. Those for chemicals continued slowing to a 7.2 percent rise from a 7.7 percent increase.

The upward pressures were seen in the prices for pulp and paper (up 13.3 percent in December versus 12.7% percent in November). The prices for non-ferrous metals rose 7.5 percent in December, accelerating from a 6.7 percent gain in November. The year-over-year rise in the prices for petroleum and coal products accelerated to 8.0 percent in December from 0.6 percent in November after slowing in recent months.

The prices for the beverages and foods -- a category with a high weighting of 144.6 out of 10,000 for the domestic CGPI -- rose 7.7 percent on the year in December after rising 7.8 percent in November. Those for transport equipment (150.9 weight) rose 4.8 percent after a 4.7 percent gain the previous month.

The prices for lumber and wood products fell 4.7 percent from a year earlier in December after falling 1.8 percent in November and edging up in October.

On the month, the domestic CGPI rose 0.5 percent in December after rising 0.8 percent in November (revised up from a 0.6 percent gain). It is much slower than the recent peak of a 1.6 percent rise hit in April 2022. The pace was slightly faster than the median economist forecast of a 0.4 percent gain (forecasts ranged from a 0.1 percent fall to a 0.5 percent rise). The increase was led by higher costs for utilities (electricity), fuels, farm produce (chicken eggs, polished rice, chicken) and transport equipment (chassis and body parts, forklift trucks and parts). The prices for chemicals, lumber and production machinery fell on the month.

Producer inflation in Japan is expected to remain high at 9.5 percent in December (versus 9.3 percent in November and 9.4 percent in October), more than double the national average consumer price increase of around 4 percent, as utility charges have stood nearly 50 percent above year-earlier levels and firms continued passing higher costs on to customers. On the month, the corporate goods price index is forecast to show a slower 0.4 percent rise after rising 0.6 percent in November as the yen's slight rebound has lowered import costs and global commodity prices have eased.

The Producer Price Index (PPI) is a measure of the average price level for a fixed basket of capital and consumer goods paid by producers. Analysts look to the PPI for early signs of inflation in the production process.

The producer price index focuses on the prices of goods transacted between companies. It was previously known as the corporate goods price index. The index reflects the price level for the supply and demand of individual industrial goods. This index is calculated by the BoJ Research and Statistics Department. Three indexes are contained in this release - the domestic producer index, the export price index and the import price index. It is the domestic index that market players follow. The PPI comprehensively tracks input price pressures; however, the PPI has a track record of increasing and not necessarily feeding through to the CPI because of weak demand. But if an increase in the PPI is followed by a rise in the CPI, concerns about inflation may prompt the Bank of Japan to raise interest rates.