Japan's Service-Sector Inflation Rises in November

By Leika Kihara

TOKYO (Reuters) – A leading indicator of Japan's service-sector inflation rose to 3.0% in November, marking a second consecutive month of acceleration, according to data released on Wednesday. This trend supports the central bank's view that rising wages are encouraging more companies to pass on increased costs to consumers.

The Bank of Japan (BOJ), which compiled this data, is closely monitoring service-sector inflation for indications of whether demand-driven price increases are broadening sufficiently to justify further interest rate hikes.

The year-on-year increase in the services producer price index (PPI) accelerated from a 2.9% gain in October, reaching a current index level of 109.1, the highest since March 1995. The rise is attributed to higher prices for a range of services, including accommodation, machinery repair, and construction.

The BOJ ended negative interest rates in March and raised its short-term policy rate to 0.25% in July, believing Japan is steadily progressing toward achieving its 2% inflation target.

Governor Kazuo Ueda has mentioned the BOJ will continue to raise rates if inflation remains on track to consistently hit 2%. Although the BOJ maintained steady rates in December, Ueda stated he would closely analyze next year's wage growth to determine when to increase borrowing costs.

A recent Reuters poll indicated all respondents expect the BOJ to raise rates to 0.50% by the end of March. The BOJ's next rate review is scheduled for January 23-24, followed by another meeting on March 18-19.