Japan PPI Keeps BOJ on Track for September Hike; Norges Bank Holds

Japan's July producer price index rose 7.2% from a year earlier, a hair below the prior month's 7.3% and short of the 7.4% consensus. Lower-than-expected oil-related costs were offset by rising metals prices, AI-related semiconductor demand, and the persistent weakness in the yen. The Bank of Japan has pointed to recent PPI readings as a key sign inflation pressures are building, and today's print reinforces expectations for a rate hike when the board meets in September.

That signal matters for the yen and for the broader rate-differential trade. Japanese government bond yields have crept higher this week, narrowing the gap with U.S. Treasuries after the July CPI report removed the risk of an upside surprise that could have pushed the Fed back toward hiking. The weekly COT data shows speculative yen shorts remain elevated; a BOJ move next month would force a squeeze that few are positioned for.

Across the North Sea, Norges Bank is expected to keep its policy rate at 4.25% when it announces its decision later today. June and July inflation prints came in low, and the central bank's own forecast for 2026 wage growth of 4.5% now looks high. Statistics Norway releases Q2 wage figures ahead of the decision, and analysts at Danske Bank said wage growth likely undershot that forecast, reinforcing the message that price pressures are easing. The krone has been supported by Brent crude holding near $88-89 a barrel after the International Energy Agency reported global oil supply is set to fall by 4.3 million barrels a day this year, creating a 1.8 million barrel a day deficit in the third quarter. EUR/NOK eased slightly on the back of that oil support, even as the market trimmed rate-hike bets. By contrast, EUR/SEK rose above 11.00 as Sweden's final July inflation figures are due today. The preliminary release surprised to the upside, driven mainly by goods prices, but Danske analysts said higher commodity prices and spring supply disruptions were likely transitory.

The UK releases June and Q2 GDP today. PMIs point to near-zero growth for the quarter, though carryover from a strong first quarter will keep the Q2 headline positive. The economy appears to have regained some momentum in July, according to early readings. Sterling held steady against the dollar in early trading.

In the U.S., July producer price index data is due alongside remarks from Fed Bank of Cleveland President Loretta Mester and Richmond Fed President Tom Barkin. Wednesday's CPI landed close to expectations – headline 3.4% year on year, core 2.5% – and the monthly details were similarly in line, with both headline and core rising 0.1% and 0.2% month on month, respectively. That removed the near-term risk of a hawkish surprise that some Fed officials had suggested could push them to support a hike at the coming meeting. Market pricing for a September hike dropped to around 40% from roughly 50-50 before the print. In the euro area, June industrial production is expected to show no change from May, after a 0.2% decline the prior month.

Equities took the CPI as a relief. The S&P 500 rose 0.3% and the Nasdaq 0.5%, with tech and industrial shares leading after two days where defensives outperformed. Semiconductors drove the tech move. Asian markets followed higher overnight, with Japan's Nikkei up 1.8% as the AI trade and lower U.S. rate expectations provided a double lift.

For currencies, the diverging paths of the Scandinavian pairs were the main story. EUR/SEK punched through 11.00 on the back of the local inflation surprise, while EUR/NOK slipped as oil prices stayed elevated. The dollar was broadly steady against the euro. The yen gained modestly, adding to its recent recovery as the BOJ narrative builds. The next concrete test for the dollar-yen pair comes with Japan's July trade data next week, but the more important catalyst remains the BOJ's September meeting – and today's PPI print has only sharpened the case for action.