BOJ's Hand Forced as Japan's Services Inflation Accelerates to 3.6%

The Bank of Japan's (BOJ) hand is increasingly forced as Japan's services inflation accelerates to 3.6% in July, surpassing forecasts.

The Corporate Services Price Index, which tracks prices companies charge each other for services, rose by 0.4% month on month and 3.6% year on year, exceeding the predicted 3.2% increase.

This uptick reinforces the BOJ's view that a tight labor market is driving firms to pass on rising costs to consumers rather than absorbing them through margins.

The acceleration in services inflation follows separate figures showing Japan's core consumer inflation accelerated in July, driven by import costs tied to a weak yen and the ongoing US-Israeli conflict with Iran.

With the BOJ set to raise its policy rate as soon as September and potentially consider a more aggressive hiking pace than its historical rhythm of two moves per year, the data adds weight to expectations for a near-term interest rate increase.