Japan Service Inflation Accelerates to 3.6%, Reinforcing BOJ September Rate-Hike Bets

Prices for services traded between Japanese companies accelerated in July, reinforcing market expectations that the Bank of Japan may raise its benchmark interest rate in September.

Bloomberg reported on August 26 that the BOJ's corporate services producer price index rose 3.6% in July from a year earlier. It was the fastest increase since May.

Sea cargo shipping costs were a major driver, soaring 67.4% from a year earlier for the biggest increase since comparable data began in 1986. The surge was attributed to the prolonged conflict in the Middle East, which has forced companies to use longer, more expensive alternative routes instead of their usual shipping lanes.

Earlier inflation readings were also revised higher. The BOJ raised April's corporate services price increase to 3.6% from an initial 3.0% and revised all figures for the April-June period upward. The changes underscore stronger-than-expected inflation pressure in Japan's services sector.

Markets are increasingly focused on the possibility that the BOJ will deliver another rate hike at its September 18 monetary policy meeting. Overnight index swaps imply the odds of a September increase are about 80%.

Investors are also watching public comments from senior BOJ officials starting on August 27. Deputy Governor Ryozo Himino is set to speak first, and traders will look for clues on whether the BOJ will tolerate market expectations for a September move or signal a pushback.