Producer inflation in Japan eased to a four-month low of 4.0% in April but not as much as expected (consensus 3.8%). The trade war initiated by President Trump with his stiff tariffs on U.S. imports dampened global demand for metals and other materials while some factors exerted upward pressures on prices. Previously, the year-on-year increase in the prices charged among businesses unexpectedly had picked up to 4.3% (revised from 4.2%) in March from 4.1% in February. The slower-than-expected moderation in producer inflation was due to a jump in utilities costs as the government scaled back its three-month electricity and natural gas subsidies in the last month. The upstream goods inflation was also pushed up by farm produce prices as the government's release of reserves through rounds of tenders to wholesalers has failed to quell rice shortages that have kept the prices of the staple high.

Produce price gains were led by the costs for farm produce (+42.2% in April vs. +39.1% in March) and utilities (+10.1% vs. +6.5%) while a much smaller rise in the prices for non-ferrous metals (+4.2% vs. +12.3%) slowed the pace of easing. The latest data also showed that the drop in lumber and wood prices eased further (-0.1 vs. -1.5%) but that at the same time, gains were slower in general machinery (+3.6% vs. +5.1%) and petroleum and coal products (+6.6% vs. +8.8%).

On the month, the corporate goods price index rose 0.2% (consensus -0.2%) after rising 0.4% in March. The unexpected increase was led by utilities (electricity and natural gas), farm produce (polished rice, brown rice and chicken) and food and beverages (delicatessen, buns and beer). It was partially offset by lower prices for chemicals, iron/steel and non-ferrous metals.

At its latest meeting on April 30-May 1, the Bank of Japan's nine-member board voted unanimously to maintain the target for the overnight interest rate at 0.5%, as widely expected, amid high uncertainty over global growth and inflation sparked by stiff Trump tariffs, after having stood pat in March. Previously, the panel voted 8 to 1 to raise the policy rate by another 25 basis points to 0.5% in its third rate hike during the current normalization process that began in March 2024. The BOJ appears to be still on course for two more 25 basis point rate hikes that would eventually take the overnight interest rate target to 1%. The bank is in the process of normalizing its policy by gradually lifting the rates that had been in a range of zero and slightly negative until March 2024.

Producer inflation in Japan is expected to ease clearly to a five-month low of 3.8% in April as a trade war initiated by President Trump with his stiff tariffs on U.S. imports dampened global demand for metals and other materials. The year-on-year increase in the prices charged among businesses unexpectedly picked up slightly to 4.2% in March from 4.1% in February. Utilities costs are seen subdued just above 6%, capped by three-month electricity and natural gas subsidies that are reflected in bill payments from February to April. The upstream goods inflation is expected to be led by farm produce prices as rice shortages, and thus high prices for the staple, continue despite the government’s release of rice reserves through rounds of tenders to wholesalers.

On the month, the corporate goods price index is forecast to post its first drop in eight months, down 0.2% after rising a solid 0.4% the previous month.

At its latest meeting on April 30-May 1, the Bank of Japan's nine-member board voted unanimously to maintain the target for the overnight interest rate at 0.5%, as widely expected, amid high uncertainty over global growth and inflation sparked by stiff Trump tariffs, after having stood pat in March. Previously, the panel voted 8 to 1 to raise the policy rate by another 25 basis points to 0.5% in its third rate hike during the current normalization process that began in March 2024. The BOJ appears to be still on course for two more 25 basis point rate hikes that would eventually take the overnight interest rate target to 1%. The bank is in the process of normalizing its policy by gradually lifting the rates that had been in a range of zero and slightly negative until March 2024.

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.