According to data released, although import prices fell as a result of the yen’s recovery, Japan’s wholesale inflation rate increased in September 2024, indicating a reduction in the pressure on prices brought on by rising raw material costs.
The Bank of Japan’s focus will probably turn to whether inflation in the fourth-largest economy in the world rises more as a result of demand with import costs declining.
The price at which businesses charge one another for goods and services is measured by the corporate goods price index (CGPI), which increased by 2.8% in September 2024 compared to the same month in 2023, according to Bank of Japan data. This was higher than the median market estimate of a 2.3% gain.
The spike in August was primarily caused by an increase in the price of rice, which is in short supply as a result of unfavourable weather and rising demand from foreign visitors.
According to the data, the Yen-based import price index experienced its first decline in eight months in September, falling 2.6% year over year following a 2.5% gain in August 2024.
The government’s return to subsidising energy bills and the strengthening of the Yen, which reduced the cost of importing raw materials and commodities, were the main causes of the downturn.
“Receding expectations of big rate cuts by the US Federal Reserve is putting a floor on the Dollar/Yen and escalating tension in the Middle East are pushing up crude oil prices,” which will both underpin domestic inflation, said Takeshi Minami, chief economist at Norinchukin Research Institute, as reported by Zawya.
“Japan’s real interest rates remain in negative territory. If higher wages push up consumption, the Bank of Japan will likely consider raising rates again,” he said, adding that another hike in December cannot be ruled out.
In March 2024, the Bank of Japan eliminated negative interest rates and increased the cost of short-term borrowing to 0.25%, believing that Japan was moving closer to its long-term goal of 2% inflation.