Japan’s wholesale inflation accelerated in June at the fastest pace in more than three years.
The producer price index increased 7.1 percent in June from a year earlier, data showed on Friday.
This exceeded market forecasts for a 6.8 percent increase and marked the fastest year-on-year rise since March 2023. It accelerated from a revised 6.6 percent gain in May.
Japan imports most of its energy, making it particularly sensitive to swings in global fuel prices.
According to Japan’s Agency for Natural Resources and Energy, the country imports “almost all” of its fossil fuels from overseas and relies on the Middle East for more than 90 percent of its crude oil imports.
The data came in the wake of the Bank of Japan (BOJ) saying on Thursday that the U.S.–Israeli war on Iran is likely to prod more firms to raise prices later this year.
“The risk of exports and output falling sharply is receding as companies make progress re-routing shipments and finding alternative sourcing to deal with supply disruptions caused by the Middle East conflict,” the BOJ report said.
The inflation spike was driven by a 22.8 percent rise in fuel prices and a 39.2 percent jump in non-ferrous metals prices, the data showed
Furthermore, a weak yen also continued to push up the cost of raw material imports.
The yen-based import price index in June rose 29.7 percent from a year earlier, accelerating from a revised 26.1 percent gain in May and rising at the fastest pace since October 2022.
“Wholesale inflation will remain elevated with negotiations between the U.S. and Iran hitting a roadblock. The impact of supply constraints and past rises in energy costs will also spread to prices for various goods,” Masato Koike, senior economist at Sompo Institute Plus, said on July 10.
“If prices rise sharply for various goods, the BOJ may be forced to raise rates early, including in October.”
The data will be among the factors the BOJ will scrutinize at this month’s policy meeting.
Seeking to dispel concerns that the Takaichi administration may interfere with monetary policy, Economy Minister Minoru Kiuchi said the government will make tweaks to the draft’s language, including those related to monetary policy.
“There’s no change to the government’s stance that specific monetary policy means are left for the BOJ to decide,” Kiuchi told a news conference on Friday.
“The government will never convey in advance its views to the BOJ about the timing and range of rate hikes or cuts, or the direction of monetary policy.”
Finance Minister Satsuki Katayama also told a separate news briefing that respecting central bank independence was “very important to maintain market trust” in government policy.
In raising its policy rate to a 31-year high of 1 percent last month, the BOJ warned of mounting inflationary pressure from the Iran war, citing steady rises in wholesale inflation.
The Bank of Japan (BOJ) voted 7–1 to raise its policy rate to about 1 percent from 0.75 percent, marking the highest benchmark interest rate since 1995. The new rate started on June 17.
Shinichi Uchida, BOJ deputy governor, said after the meeting that the risk of a severe economic slowdown had diminished since the bank’s previous meeting in April.
“On the other hand, price rises are broadening, and there is a risk that underlying inflation may deviate from our target,” he said.
Most analysts polled by Reuters expect the BOJ to raise rates again to 1.25 percent by year-end.
A S&P Global survey data published on July 3 said that cost pressures picked up across Japan’s private sector, with input costs rising at the sharpest pace in four years.
“Prices charged inflation meanwhile eased from May’s record high, but remained rapid overall,” it added.
Reuters and Evgenia Filimianova contributed to this report.
