BOJ Hike Odds Soar as Japan Wholesale Inflation Rises 7.2%

Japan's wholesale inflation remained elevated in July, with an annual increase of 7.2%, according to data released by the Bank of Japan (BOJ) on Thursday. This figure is slower than market forecasts but still near the 7.3% spike seen in June.

The producer price index rose 0.1% month-on-month in July, after a revised 0.5% increase in June. Economists point to renewed tension in the Middle East as a key factor driving up crude oil prices and subsequently pushing up the cost of energy and other goods.

Senior economist Masato Koike at Sompo Institute Plus noted that wholesale inflation is expected to re-accelerate, with further yen falls potentially lifting import prices. This has reinforced market expectations of an interest rate hike in September, with some policymakers arguing for a faster pace of rate hikes to counter inflation risks.

The BOJ's policy meeting last month highlighted the recent spike in wholesale inflation as a key sign of increasing inflation risks that could warrant additional rate hikes. With annual core inflation in Tokyo hitting 1.9% in July, concerns over the weak yen's impact on households and retailers through higher import costs have reinforced expectations for another rate increase.