Producer prices in Japan rose 0.8 percent on the year in March, as expected, accelerating slightly from an upwardly revised 0.7 percent rise in February and the recent low of a 0.3 percent gain in January, as the base-year effect of government subsidies for utilities had waned and the weak yen is gradually pushing up import costs after earlier declines.

It was the 37th straight year-on-year increase but the pace of increase has slowed from a recent peak of 10.6 percent reached in December 2022. The downward pressure is still coming from utilities, which fell 19.1 percent on year in March versus a 21.5 percent drop in February, and the prices for lumber, steel and chemicals remained below year-earlier levels, albeit falling at a slower pace.

On the month, the corporate goods price index (CGPI) rose 0.2 percent, lower than the median forecast of a 0.4 percent rise, after rising 0.2 percent in February. It has eased from the recent peak of a 1.6 percent rise hit in April 2022. The increase in March was led by non-ferrous metals, farm produce, utilities and textile products while fuel prices edged up after a recent drop.

In the fiscal year that ended last month, the CGPI rose a modest 2.3 percent on the year after surging 9.5 percent in fiscal 2022 and 7.1 percent in fiscal 2021.

Econoday's Relative Performance Index (RPI) stood at minus 1, just below zero, which indicates the Japanese economy is performing largely as expected. Excluding the impact of inflation, the RPI is at minus 5.

The CGPI's import price index in yen terms rose 1.4 percent on year in March, the highest since the 9.4 percent rise in March 2023, after posting its first year-over-year increase in 11 months in February with a 0.2 percent rise in the face of the lingering weakness of the yen. In contract currencies, the index dropped 6.9 percent after falling 8.3 percent. The yen-based import cost increase peaked at 49.5 percent in July 2022.

The yen depreciated further to an average ¥149.63 to the dollar in March during Tokyo trading hours from ¥146.42 in February as Bank of Japan officials repeatedly said financial conditions were likely to remain accommodative after the bank's first rate hike in 17 years in March. The yen's relative strength in a range of ¥130 to ¥134 in the first four months of 2023 helped lower import costs, which slumped as much as 14.7 percent in yen terms last July.

Producer inflation in Japan is expected to accelerate further to 0.8 percent in March after rising to 0.6 percent in February from the recent low of 0.2 percent seen in the previous two months as the base-year effect of utility subsidies that began in early 2023 had waned. But the downward pressure is still coming from utilities, which fell more than 20 percent in February, and the prices for lumber, steel and chemicals also remain below year-earlier levels. The taming effects of these items are partly offset by higher energy and transportation costs amid the conflict in the Middle East and the yen's weakness. On the Month, the corporate goods price index (CGPI) is forecast to rise 0.4 percent following a 0.2 percent gain.

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.