The index measuring input prices for Japanese businesses experienced a 7.1% rise in June compared to the same month last year, with May’s figures also revised upward, according to a report from the Bank of Japan released on Friday. Prices increased by 0.4% month-on-month, with last month’s data also adjusted higher.
This latest figure contributes to a series of significant readings, following a notable increase in April that marked the largest in 12 years, and continued growth in May after the onset of the conflict in Iran. Coupled with other recent indicators that highlight favorable credit conditions and robust business activity, this data supports the BOJ policymakers’ view on further rate hikes.
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Market participants largely anticipate another interest rate hike by the end of the year, with increasing speculation that it could occur as soon as October. The yen was trading around 162.36 per dollar on Friday morning in Tokyo, remaining close to its lowest level in 40 years.
The rise in the producer price index was primarily driven by oil, gasoline, electricity, and plastics. Energy price hikes prompted Prime Minister Sanae Takaichi to draft an additional budget to extend subsidies for households, easing the financial burden stemming from the conflict in the Middle East.
The PPI suggests that companies are more inclined to transfer rising costs onto consumers, indicating a growing acceptance of inflation expectations. This was also reflected in Japan’s annual wage negotiations, which wrapped up last week, with average salary increases exceeding 5% for the third consecutive year—the first such occurrence since 1989-1991.
