Japan’s wholesale inflation slows, weak yen pressures import costs

By Leika Kihara

TOKYO, Feb 12 (Reuters) – Japan’s annual wholesale inflation slowed for a second consecutive month in January but yen-based import costs rose, highlighting the impact of a weak yen on prices and monetary policy.

While wholesale price growth is expected to moderate in the coming months due partly to the effect of fuel subsidies, yen fluctuations will be key to the inflation outlook and timing of future interest rate hikes by the Bank of Japan, analysts said.

“As wholesale price growth slows, consumer inflation will likely come under downward pressure with some lag,” said Masato Koike, a senior economist at Sompo Institute Plus.

“Service-sector inflation also lacks momentum. For the time being, the BOJ’s rate-hike plans might face headwinds from price developments,” he said.

The corporate goods price index (CGPI), which measures the price companies charge each other for their goods and services, rose 2.3% in January from a year earlier, data showed on Thursday. That matched a median market forecast and slowed from a 2.4% gain in December.

While fuel prices fell 12.9% year-on-year in January, prices of nonferrous metals jumped 33% and those of agricultural goods increased 22.4%. Food and beverage prices rose 4.7% in January after a 4.8% gain in December, the data showed.

An index measuring yen-based import prices rose 0.5% last month from a year earlier after a revised 0.2% increase in December, BOJ data showed.

The yen rebounded in recent sessions but its persistent weakness has been among factors pushing up inflation by boosting the cost of importing fuel and raw materials.

The yen strengthened 0.75% to hit 153.22 per dollar on Wednesday, on track for the third straight session of gains, rebounding from a downtrend that pushed it near the psychologically important 160 mark last month.

Wholesale price data will be among factors the BOJ scrutinises in determining whether underlying inflation is on track to durably hit its 2% target.

The BOJ raised its policy rate to a 30-year high of 0.75% from 0.5% in December, taking another landmark step in ending decades of huge monetary support and near-zero borrowing costs.

With consumer inflation exceeding its 2% target for nearly four years, the central bank has stressed its readiness to continue raising interest rates if economic and price developments move in line with its forecasts.

The BOJ has signalled that yen moves would be a crucial factor in determining the timing of future rate hikes, with some policymakers warning of the risk of being “behind the curve” in dealing with too-high inflation.

(Reporting by Leika Kihara; Editing by Shri Navaratnam and Jacqueline Wong)