BOJ Hikes Interest Rates Amid Japan's Surging Service-Sector Inflation

Japan's service-sector inflation surged to a two-year high in August, fueling expectations that the Bank of Japan (BOJ) will continue raising interest rates. According to data released by the BOJ on Monday, the Services Producer Price Index (SPPI), which measures the prices companies charge each other for services, rose 3.7 per cent year-on-year in August, up from 3.6 per cent in July.

The increase was driven by higher freight, advertising and rental lease fees, indicating broader price pressures in Japan's economy. This development comes on the heels of the BOJ's recent rate hike, which saw its key interest rate increased by 25 basis points to 1.25 per cent from 1 per cent earlier in September.

The BOJ has warned that underlying inflation could exceed its 2 per cent target amid rising wage and price expectations. The central bank has also stated that it will continue to raise the policy interest rate and adjust the degree of monetary accommodation depending on developments in economic activity, prices, and financial conditions.