Nikkei 225

Japan's Producer Prices Rise Faster Than Expected Ahead of BOJ Meeting

Japan's producer inflation accelerated in May, signaling persistent cost pressures ahead of the upcoming policy decision.The country's producer price index rose 6.3% year over year in May, according to preliminary data released by the Bank of Japan on Wednesday.The reading exceeded the consensus forecast for a 5.6% increase and accelerated from the 5.3% rise recorded in April.On a month-on-month basis, corporate goods prices increased 0.9% from April, slowing from the 2.8% growth between March and April.The stronger-than-expected reading highlighted persistent cost pressures facing Japanese companies, with higher energy and commodity prices continuing to filter through supply chains amid disruptions linked to the conflict involving Iran.The impact has been amplified by Japan's heavy reliance on imported fuel and raw materials.The data comes ahead of the Bank of Japan's June 15-16 policy meeting, where policymakers are expected to assess the inflationary effects of rising energy costs and broader global uncertainties.Investors increasingly expect the central bank to raise its short-term policy rate to 1.0% from 0.75%, a move that would lift borrowing costs to their highest level in decades.Many Bank of Japan watchers now expect two interest-rate increases this year, with the first likely to come at next week's policy meeting.A Bloomberg survey showed 49 of 51 economists expect the central bank to raise its benchmark interest rate when its policy board concludes a two-day meeting on June 16.Expectations for a rate increase have gained momentum after Bank of Japan Governor Kazuo Ueda signaled last week that policymakers were becoming more concerned about upside inflation risks."Based on the data and anecdotal information available thus far, the upside risks to prices appear to be greater overall and are likely to emerge sooner," Ueda said.The comments have fueled speculation that the central bank may place greater emphasis on combating inflation even as economic uncertainties persist."The focus of this meeting will be how far Governor Ueda goes in discussing the possibility and necessity of accelerating the pace of rate hikes, in other words, whether he will suggest a shift toward being an 'inflation fighter,'" Naomi Muguruma, chief bond strategist at Mitsubishi UFJ Morgan Stanley Securities, wrote in a survey response, according to Bloomberg News.Despite the acceleration in producer inflation, consumer price growth has remained comparatively subdued.Government measures, including fuel and energy subsidies, have helped shield households from rising costs, limiting the pass-through of higher import, commodity, and energy prices to consumers even as businesses continue to face elevated input costs.Japan's core consumer price index, which excludes fresh food, rose 1.4% year over year in April, marking the slowest pace of growth in four years as government support measures helped ease cost-of-living pressures.