Japan Services PPI Beats, Keeps BOJ on Track for September Hike
Japan's July services PPI rose 3.6% y/y, beating the 3.2% estimate and accelerating from June. The print reinforces the case for a BOJ rate hike to 1.25% in September.
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Japan's July Services Producer Price Index rose 3.6% from a year earlier, above the 3.2% consensus forecast and accelerating from the prior month's 3.2% pace. On a month-over-month basis, the index gained 0.4% after a 0.4% decline in June.
The data, released by the Bank of Japan on Tuesday, covers prices charged by companies in the services sector, a category the central bank has flagged as critical for assessing the sustainability of wage-driven inflation.
A reading above 3% keeps services inflation well above the BOJ's 2% target. The central bank has said it will continue raising interest rates if underlying price pressures remain elevated. Markets currently price a 25-basis-point hike to 1.25% at the September policy meeting, a move that would follow the July rate increase to 1.00%.
The yen strengthened modestly after the print, though the move was contained against a broadly steady dollar. Japan's 10-year government bond yield edged up 1 basis point to 1.12%, reflecting the repricing of rate expectations.
For the BOJ, the services PPI is a forward-looking input to the consumer price index, particularly for components such as dining, accommodation, and medical services. The July CPI report is due later this month.
The central bank's next rate decision is scheduled for Sept. 19-20.
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