BOJ Hike Bets Soar as Japan's Corporate Inflation Accelerates to 3.6%

Japan's corporate services inflation continued to rise in July, accelerating by 3.6% from a year earlier, according to data released on Wednesday. This increase follows a revised 3.4% gain in June and reinforces the Bank of Japan's view that a tight labor market is pushing companies to pass rising costs onto consumers.

The services producer price index (SPI) tracks the prices companies charge each other for services. The SPI is an important gauge of inflationary pressure in the economy, and its increase has bolstered the case for a near-term interest rate hike. Japan's core consumer inflation also accelerated in July as firms passed on rising import costs from a weak yen and the U.S.-Israeli war with Iran.

Sources have told Reuters that the Bank of Japan is set to raise its interest rate as soon as September and may consider hiking more aggressively thereafter, at a pace of roughly two times per year. The BOJ's decision will be closely watched by investors, who are awaiting clear signals from the central bank on its monetary policy.