Producer inflation in Japan accelerated to 4.2% in January after ticking up to 3.9% (revised up slightly from 3.8%) in December from November's 3.8%, staying at the highest pace since +4.5% in June 2023. Utility costs have risen since the government ended a three-month subsidy late last year amid the prolonged heat wave and there has been a spike in farm produce costs caused by relentless domestic rice shortages and the weak yen that had been pushing up import costs.

On the month, the corporate goods price index rose 0.3% after rising 0.4% (revised up slightly from +0.3%) the previous month.

The recent acceleration has been led by the costs for farm produce (+36.2% y/y in January vs. +36.9% in December), non-ferrous metals (+14.3% vs. +12.7%) and utilities (+11.1% vs. +12.7%). The latest data also showed that the drop in lumber and wood prices accelerated (-3.4% vs. -2.6%) while production machinery costs picked up further (+2.5% vs. +1.9%) and petroleum/coal product prices rebounded (+2.6% vs. -0.6%).

At its latest meeting on Jan. 23-24, the Bank of Japan's nine-member board, as widely expected, voted 8 to 1 to raise the policy interest rate by another 25 basis points (0.25 percentage point) to 0.5%.

The BOJ is in the process of normalizing its policy by gradually lifting the rates from zero and slightly negative at every third or fourth meeting. The BOJ under Governor Ueda shifted gear in March 2024 with its first rate hike in 17 years and an end to the seven-year-old controversial yield curve control framework, following a decade of large monetary easing aimed at reflating the economy. The board stood pat in December, October and September after voting 7 to 2 in July to hike the rate to 0.25% from a range of 0% to 0.1%.

Producer inflation in Japan is expected to accelerate further to 4.1% in January after being unchanged at 3.8% in December and staying at the highest pace since +4.5% in June 2023. Energy cost have risen since the government ended a three-month utility subsidy program late last year and there has been a spike in farm produce costs caused by relentless domestic rice shortages.

On the month, the corporate goods price index is forecast to have risen 0.3% after rising 0.3% in the previous two months.

At its latest meeting on Jan. 23-24, the Bank of Japan's nine-member board, as widely expected, voted 8 to 1 to raise the policy interest rate by another 25 basis points (0.25 percentage point) to 0.5%.

The BOJ is in the process of normalizing its policy by gradually lifting the rates from zero and slightly negative at every third or fourth meeting. The BOJ under Governor Ueda shifted gear in March 2024 with its first rate hike in 17 years and an end to the seven-year-old controversial yield curve control framework, following a decade of large monetary easing aimed at reflating the economy. The board stood pat in December, October and September after voting 7 to 2 in July to hike the rate to 0.25% from a range of 0% to 0.1%.

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.