Japan's producer prices rose 7.1% year over year in June, accelerating from a revised 6.6% increase in May, according to preliminary data released by the Bank of Japan on Friday.
The reading was higher than the Investing.com consensus forecast of a 6.8% increase.
On a monthly basis, the corporate goods price index, which measures the prices companies charge each other for goods and services, rose 0.4% in June, slowing from a revised 1.1% increase in the previous month.
The annual increase was driven by higher prices for petroleum and coal products, electricity, gas and water, plastic products, and lumber and wood products, while lower prices for agricultural, forestry and fishery products partly offset the gains.
Combined with recent data showing resilient credit demand and solid business activity, the figures reinforce the Bank of Japan's case for further monetary policy normalization.
The BOJ raised its policy rate to 1% earlier in June, the highest level since 1995, while signaling it would continue to assess whether sustained wage growth and broadening price pressures warrant further policy tightening.
Markets continue to expect another rate hike by year-end, with growing speculation that the next increase could come as early as October.
Former Bank of Japan official Tsutomu Watanabe said the central bank may accelerate the pace of interest rate hikes later this year and eventually lift its benchmark rate above 2%, Bloomberg News reported.
"I believe the eventual peak in interest rates will be higher than most people currently expect," Watanabe, now an emeritus economics professor at the University of Tokyo, told Bloomberg.
"The terminal rate will be around 2%, or perhaps a little above," he added.
Japan's Prime Minister Sanae Takaichi's government approved a 3.1 trillion yen supplementary budget in June to help cushion households from rising energy costs amid the risk of a prolonged Middle East crisis.
The package will be financed entirely through deficit-financing bonds, with the government aiming to offset the additional borrowing through stronger tax revenues and non-tax income rather than increasing overall bond issuance to the market.
Recent data suggest higher interest rates have yet to materially weigh on economic activity.
Bank lending in June matched its strongest pace since the pandemic, while the BOJ's latest Tankan survey showed business financial conditions improving for the first time in a year.
