Japan wholesale inflation stays hot in August, keeping BOJ rate hike in play

Japan's wholesale inflation stayed elevated in August, official data showed on Friday, keeping alive expectations that the Bank of Japan will raise interest rates at its policy meeting next week.

The producer price index, which tracks prices firms charge each other for goods and services, rose 7.6% from a year earlier, the BOJ said. That was faster than the 7.4% median market forecast and followed a revised 7.7% gain in July.

On a month-on-month basis, the index slipped 0.2% in August, reversing a revised 0.4% increase in July.

Import costs remained a key driver. The yen-based import price index climbed 24.8% year-on-year in August, though that was slower than a revised 29.3% surge in July. The reading points to the currency's weakness during the month feeding into import bills and, more broadly, into inflation.

Rising fuel costs linked to the Middle East conflict and costlier imports due to the weak yen have added to price pressures, prompting the BOJ to warn of the risk that inflation could overshoot its target.

Governor Kazuo Ueda has said the central bank is watching wholesale inflation closely for signals on how far firms are passing on higher costs to households.

The BOJ lifted its policy rate to a 31-year high of 1% in June, judging that Japan was close to durably achieving its 2% inflation target. It left rates unchanged in July but signalled a strong chance of a near-term increase amid mounting price pressures.

Markets have almost fully priced in a hike to 1.25% from 1% at next week's meeting. Analysts surveyed expect the BOJ to move to 1.25% next week and then to 1.75% in the second quarter of 2027, earlier than previously projected, citing persistent concerns over broadening price pressures and yen weakness.