BOJ on Track for Further Rate Hikes as Japan's Service-Sector Inflation Reaches Two-Year High
Japan's service-sector inflation gauge has reached a two-year high, according to the latest data from Traders Union. The services producer price index rose 3.7% year-on-year in August, surpassing July's 3.6% increase and marking the fastest annual pace since June 2024.
The acceleration in service-sector inflation is driven by rising freight, advertising, and rental lease fees, indicating persistent inflationary pressure across Japan's service sector. This development adds to signs that the Bank of Japan remains on course for further interest rate increases after lifting borrowing costs earlier this month.
BOJ Governor Kazuo Ueda has indicated a willingness to increase borrowing costs further if needed to prevent inflation from overshooting its target. The narrowing gap between 10-year and 2-year U.S. Treasury yields is also raising concerns that tighter policy could slow growth and amplify recession fears, with knock-on effects for rate-sensitive sectors.