Producer inflation in Japan eased in January as energy and commodity markets had turned softer and the recent rebound in the yen helped lower import costs, but the annual rate just under 10 percent indicates firms are still trying to pass the past year's cost rises, data released Friday by the Bank of Japan showed.

At its latest meeting on Jan. 17-18, the BoJ policy board decided 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, against the backdrop of a possible recession in other major economies and an expected waning in inflation from the current spike boosted by high import costs.

The Econoday Consensus Divergence Index stood at minus 2, just under zero, which indicates the Japanese economy is performing only slightly worse than expected after outperforming earlier this year. Excluding the impact of inflation, the index was at plus 3.

The corporate goods price index (CGPI) rose 9.5 percent on the year in January, coming just under the median economist forecast of a 9.6 percent rise (forecasts ranged from 9.3 percent to 10.1 percent gains). It was the 23rd consecutive gain following increases of 10.5 percent (revised up from 10.2 percent) in December, 9.8 percent (revised from 9.7 percent) in November and 9.7 percent (revised from 9.6 percent) in October. The upwardly revised annual rate of 10.5 percent in December surpassed September's 10.3 percent gain, hitting a 42-year high. It is the highest since November 1980, when the index rose 11.8 percent during the 14-month period of double-digit percentage gains through December 1980 in the wake of the 1979 oil crisis triggered by the Iranian Revolution.

The relatively weak yen at around Y130 to the dollar in January, compared to Y115 a year earlier, is keeping import costs high. The year-over-year increase in the CGPI's import price index in yen terms was 17.8 percent on year in January (22.2 percent in December), higher than 7.2 percent (7.6 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 3.5 percent against the yen on the month in January after falling 5.2 percent in December and 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 49.7 percent on the year in January, but the pace of increase decelerated from 53.4 percent in December after recent acceleration.

Iron and steel maintained a double-digit percentage gain but posted a slower increase of 19.2 percent after rising 21.0 percent the previous month. Those for chemicals continued slowing to a 6.0 percent rise from a 7.3 percent increase. The prices for non-ferrous metals rose 6.0 percent in January, also decelerating from a 7.6 percent gain in December.

The year-over-year change in the prices for petroleum and coal products turned negative, down 0.5 percent in January after rising 8.1 percent in December. The prices for lumber and wood products fell 8.2 percent from a year earlier in January for the third straight drop after falling 4.8 percent in December.

By contrast, the upward pressure on the prices for pulp and paper continued, rising 14.6 percent in January after a 13.7 percent gain in December. Ceramic, stone and clay products also picked up their pace of increase slightly to 11.7 percent from 11.5 percent.

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 8.0 percent on the year in January after rising at a similar pace of 8.1 percent in December. Those for transport equipment (150.9 weight) rose 4.6 percent, slowing from a 5.0 percent gain the previous month.

On the month, the domestic CGPI was unchanged in January after rising 0.7 percent in December (revised up from a 0.5 percent gain) and slowing from the recent peak of a 1.6 percent rise hit in April 2022. It was below the median economist forecast of a 0.3 percent gain (forecasts ranged from 0.1 percent to 0.7 percent gains). The costs for utilities (electricity, water), metal products, non-ferrous products and pulp and paper posted gains while the prices for fuels and farm produce (meat) fell after recent gains and those for lumber and wood products continued to slide.

Producer inflation in Japan is expected to have remained elevated in January on surging utility charges and a widespread move among firms to reflect high costs, but the pace of year-over-year increase is forecast to have decelerated to 9.6 percent from 10.2 percent in December amid easing energy and commodity markets and a modest rebound in the yen's value. The 10.3 percent rise in September 2022 is the highest in 41 years.

On the month, the domestic corporate goods price index (CGPI) is seen up 0.3 percent after rising 0.5% in December and slowing from the recent peak of a 1.6% rise hit in April 2022.

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.