Japan's wholesale price momentum moderated in January, but import costs measured in yen increased, according to Bank of Japan data released on Thursday. The corporate goods price index - which records the prices companies charge one another for goods and services - rose 2.3% from a year earlier, matching the median market forecast and marking a second consecutive monthly slowdown from December's 2.4% gain.
At the same time, an index that tracks yen-based import prices climbed 0.5% year-on-year in January, following a revised 0.2% increase in December. The divergence between the easing in wholesale price growth and the uptick in import costs highlights continued cost pressures tied to the currency's weakness.
The BOJ will consider these readings among other indicators as it assesses whether underlying inflation is on a path to durably reach its 2% target. Policymakers have already moved toward tighter settings - raising the policy rate in December from 0.5% to 0.75%, a level the BOJ describes as a 30-year high - in a further step away from prolonged eras of heavy monetary support and near-zero borrowing costs.
While the CGPI's slower annual increase signals some softening in the pace of wholesale price rises, the rise in yen-based import prices suggests import-dependent firms may continue to face higher input costs. The combination of these data points makes the BOJ's assessment of inflation persistence particularly important for decisions on the policy trajectory.
For companies that trade or procure goods internationally, the higher import price index implies direct cost pressures, whereas the moderation in the CGPI may reflect weaker pass-through of those costs to business-to-business prices or changing demand dynamics within domestic wholesale channels. The BOJ's scrutiny of such readings will shape expectations for future monetary policy steps.
Policy makers will weigh whether the observed trends point to a sustainable return to target inflation or whether currency-driven import cost swings could complicate the outlook for price stability.
Key points
- CGPI rose 2.3% year-on-year in January, slowing from 2.4% in December and matching the median market forecast.
- Yen-based import prices increased 0.5% year-on-year in January, after a revised 0.2% rise in December - evidence of continued cost pressure from a weak yen.
- The BOJ raised its policy rate to 0.75% from 0.5% in December, a 30-year high, and will use these data to assess whether inflation is on track to sustainably meet the 2% target.
Risks and uncertainties
- Persistent weakness in the yen could continue to push up import costs, affecting import-reliant sectors and corporate margins.
- Whether the observed moderation in wholesale inflation represents a durable slowdown or a temporary fluctuation remains uncertain - an open question for policy makers.
- The BOJ's future policy decisions depend on whether these data indicate sustained progress toward the 2% inflation target, creating uncertainty for markets and businesses sensitive to interest-rate changes.